The state of the financial markets - Archegos, Banking Stocks, and more

The stock market remains nervous over Archegos, a family office hedge fund run by Tiger cub (informal way of referring to ex-execs of renowned hedge fund Tiger Management) Bill Hwang. The fund had highly leveraged positions in American Media Companies such as Discovery, Viacom CBS through total return swaps. Unwinding these positions sent shockwaves through the markets as investment banks Goldman Sachs & Morgan Stanley sold nearly ~$20 billion in stock on Friday.

Investment Banks Nomura and Credit Suisse had quite some exposure to Bill Hwang’s Archegos. Archegos’ default on these swaps could cost the likes of Credit Suisse as much as $2 billion, and significantly impact the results this quarter. As a result of this development, Credit Suisse’s stock declined by over 20%

As the past few months have demonstrated, any equity analysis remains incomplete without taking the bond markets into account. On the bond front, Treasuries sold off yet again, reaching newer yield highs for the pandemic period, as news on vaccinations in the US remains relentlessly positive. As we inch closer to a vaccinated world, I anticipate further rotations from bonds to equities as the markets price in higher industrial activity, higher consumption and subsequently higher earnings.

Fiscal policy remains in the news as well. Just as was the case for the COVID-relief package, the size of the Biden administration’s next fiscal package continues to move higher. We started at $2 trillion, quickly moved to $3 trillion, and now sources are beginning to mention $4 trillion or higher (I’m hearing an auctioneer in my head).

Unless tax hikes are massive, that’s a lot of treasury supply! The economy began to open in earnest in March and we will over the course of this week, get some monthly data to back that up. Today, the Conference Board consumer confidence gauge likely surged, while later in the week, we get the ISM manufacturing report and the employment release, both of which should be robust!

All that’s mentioned in this post are my personal views and should not be construed as financial advice.