Dow rises amid stock jitters tied to massive margin call on investment fund

What’s driving the market?

The Dow flipped positive in afternoon trade, despite lingering jitters tied to reports that Hwang’s Archegos Capital Management recently sold some $30 billion in holdings to meet margin calls, according to The Wall Street Journal, citing people familiar with the matter.

“Are there others? I’m sure there are,” said David Barse, founder and chief executive of XOUT Capital, of funds that combine leverage with higher-risk investment strategies that if caught off guard could cause prices of their holdings to at least temporarily tumble. “I’m sure banks are looking very carefully at that,” he told MarketWatch, while adding that brokers also likely are “tightening their risk profiles on clients.”

“My response is don’t own single-stock risk, unless you know more about the stock than the marketplace, because it could be that something you have no control over is going to impair your investment.”

But Barse also said that unlike during the 2008 financial crisis, leverage isn’t broadly being pared up with derivatives, which amplified financial losses globally more than a decade ago.

Even so, the bulk asset sales last Friday drove shares of Discovery DISCA, -1.60% and ViacomCBS VIAC, -6.68% registered their worst one-day declines on record and continued to be under pressure Monday, even as the broader market finished sharply higher to cap a turbulent trading week.

Global investment banks Credit Suisse Group CS, -11.54% and Nomura Holdings NMR, -14.07% on Monday said they were likely to take hits due to the volatility in the market, but didn’t directly name Hwang’s fund.

“A significant U.S.-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks,” said Credit Suisse. “Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions.”

“It now appears, according to reports, that the selloff was the result of a liquidation from a fund called Archegos Capital Management, after some its positions moved offside, raising some concerns about a trickle-down effect to other stocks,” wrote Michael Hewson, chief market analyst at CMC Markets. “We’ll see whether those concerns are well founded later today,” he wrote.

The buzz around the margin call comes at the start of a holiday-shortened week, as investors brace for a fresh round of volatility. Some markets will be closed in observance of Good Friday, including those in the U.S., and some European markets will remain closed next week for Easter Monday.

Meanwhile, investors also were watching news that tugs had partially dislodged the 1,300-foot Ever Given container ship, operated by Taiwan-based Evergreen Group, which has been blocking the Suez Canal, one of the busiest trade waterways in the world. The blockage by the tanker has caused massive logjams. The removal of the ship could help to reopen the vital trade route that accounts for some 12% of global trade.

On the public-health front, the global coronavirus tally rose above 127 million on Monday, according to data aggregated by Johns Hopkins University, with the U.S. accounting for a quarter of that number, at more than 30 million.

The death toll rose above 2.78 million with the U.S. accounting for about a fifth, or 549,335. The U.S. added at least 45,552 new cases on Sunday, according to a New York Times tracker, and at least 487 people died. 

Markets have been climbing unsteadily in the past few weeks due to worries about a resurgence of COVID-19 in Europe that has forced extended lockdown periods, even as vaccine rollouts and some $1.9 trillion in COVID in the U.S. has helped to support the domestic economy, which has also been pushing benchmark bond yields higher.

Worries about the Suez blockage, concerns about the viral spread and the possibility of a financial market contagion have all added to the headwinds facing equities.

Which stocks are in focus?

• Southwest Airlines Co. LUV, -0.49% shares fell 1.3% Monday after the airline placed 100 firm orders for the Boeing 737 Max 7 with the first 30 of those aircraft to be delivered in 2022. As part of an agreement with Boeing BA, +2.29%, Southwest also converted 70 Max 8 firm orders to Max 7 firm orders and added 155 MAX options for MAX 7 or MAX 8 aircraft for years 2022 through 2029. 
• Cal-Maine Foods Inc. shares CALM, -1.36% were down 2% Monday, after the egg producer posted a far bigger-than-expected profit for its fiscal third quarter, offsetting a sales miss. 
• Shares of Goldman Sachs Group Inc. GS, -0.43% and Morgan Stanley MS, -2.64%, which were reportedly part of the Hwang block trades, also were in focus Monday.
• Moderna Inc. MRNA said it has shipped the 100 millionth dose of its COVID-19 vaccine to the U.S. government and expects to meet its commitment dates for all current orders. Its shares were down nearly 8.4%.
• Insurer The Allstate Corp. ALL, +0.84%  said Monday it expects to book a net loss of about $4 billion as it completes the exit of its life and annuity businesses. Allstate’s shares were up 0.7%.
• Applied Materials Inc. AMAT shares fell 3.7% Monday after the company said its agreement to purchase Kokusai Electric Corp. was terminated because the company didn’t obtain approval for the deal by Chinese regulators in time.

How are other assets faring?

• The 10-year Treasury note yieldBX:TMUBMUSD10Y rose 2 basis points to 1.70%. Bond prices move inversely to yields.
• The ICE U.S. Dollar index DXY, +0.18%, a benchmark of the dollar’s value versus its major rivals, was up 0.2% at 92.91.
• The Stoxx Europe 600 index SXXP, +0.16% closed up 0.2%, while the U.K.’s FTSE 100 UKX, -0.07% shed 0.1%. The Nikkei NIK, +0.71% closed up 0.7%, and China’s CSI 300 index 000300, +0.18% rose 0.2%.
• The U.S. crude benchmark CL.1, +1.00% shook off earlier pressure, was up 0.8% to $61.44 a barrel, on the New York Mercantile Exchange. Prices for gold futures GC00, -1.30% tumbled 1.2% to settle at $1,712.20 an ounce.

Mark DeCambre contributed reporting