Dow drops 100 points as big banks dive amid fire concerns

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Top line

Stocks slide from record highs on Friday amid fallout from a $ 30 billion discount sale of hedge funds, highlighting speculative pockets in the market as investors fear big banks reign on debt risky margin that resulted in big losses last week.

Highlights

Shortly after the market opened, the Dow Jones Industrial Average and the S&P 500, which both closed record highs on Friday, fell 70 points, or 0.2% and 0.5%, respectively, while the recently underperforming Nasdaq fell 0.3%. .

The big banks are showing market losses, with Morgan Stanley, Goldman Sachs, JPMorgan and Citigroup plunging between 2% and 5%.

Meanwhile, ViacomCBS and Discovery, whose Friday dips helped spark Archegos Capital Management’s massive fire sale, hold onto their losses, dropping 4% and climbing just 1%, respectively, after dropping by about 27% every Friday.

Elsewhere in the market, shares of property and casualty insurance company Chubb are up 2% in the S&P after the company issued a statement saying it was “disappointed” Hartford Financial Services chose not to discuss the proposed buyout of Chubb; Hartford shares plunge 4%.

Global stocks, meanwhile, are mixed, with the UK’s FTSE 100 plunging 0.5%, while the German DAX index climbs 0.3%.

Key context

Although tech stocks continue to underperform amid concerns about rising Treasury yields, the broader market has hit record highs this year as states begin to lift Covid-19 lockdown restrictions and that billions of dollars are being pumped into the economy by Washington. Yet pockets of commercial mania have dominated the headlines, with unprecedented volatility in some companies: first, in meme stocks like GameStop and AMC Entertainment, but more recently, in larger companies like Rocket Companies and ViacomCBS. . Meanwhile, record levels of margin debt have compounded market risk, as evidenced by the forced margin call on Friday.

Crucial quote

“Stocks are trading lower across the board and giving up some of Friday night’s rally,” Vital Knowledge Media founder Adam Crisafulli said Monday morning. “Friday’s extreme volume of block trades resulted in significant losses at at least two banks, and investors fear this block may be a macro issue as banks rule over margin lending at all levels,” stimulating further forced sales, but it probably is. exaggerated. “

What to watch out for

President Joe Biden is expected to launch his long-awaited Build Back Better package in Pittsburgh on Wednesday. The follow-up to the $ 1.9 trillion US bailout will be split into two separate legislative proposals, the White House said on Sunday. Investments in infrastructure will be at the heart of the first part of the plan, with more going to health care and childcare at the end of April. The main beneficiaries are expected to be industrial and materials companies, which will be called upon for infrastructure projects, but small-cap companies, whose sales tend to explode during periods of increased capital spending, are also likely. to win big, according to Bank of America.

Further reading

Nomura and Credit Suisse warn of ‘significant’ losses following sale of Archegos fire and fall in bank stocks (Forbes)

The company behind the $ 30 billion garage sale that rocked financial markets has revealed next to nothing (Forbes)

Biden to split new $ 3 trillion stimulus package into two proposals, with infrastructure first on bridge (Forbes)

Trade war: Biden administration not ready to ‘withdraw’ Chinese tariffs, but open to talks (Forbes)

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