Stock Market Today: Hedge Fund Brouhaha Fails to Rattle Dow
A hedge fund's margin call default caused pain for U.S. communications stocks Friday, and for a few global banks Monday, but the blue-chip indices held up.
The broader indices kicked off a holiday-shortened trading week with fairly mixed results, but one of Monday's biggest stories was about Friday trading activity.
"As we start the week and the final three days of Q1, investors have been bracing for potential further block trades following a wave of sales on Friday that saw a number of U.S. media companies and Chinese technology firms lose significant ground," says Deutsche Bank analyst Henry Brown.
"Multiple news outlets have cited sources saying that Archegos Capital was behind the trades, with ViacomCBS (VIAC, -6.7%) and Discovery (DISCK, -2.3%) both seeing their largest ever daily declines on Friday, as each fell by more than -27%."
Many of those sales were in positions held by large U.S. hedge fund Archegos Capital, founded by Julian Robertson protégé Bill Hwang. Archegos reportedly defaulted on margin calls sparked by considerable declines in its portfolio.
Credit Suisse (CS, -11.5%) and Nomura Holdings (NMR, -14.1%) both sank today as they warned shareholders of significant losses linked to a large U.S. client. While neither bank specifically named the client, it was largely believed to be Archegos.
The major indices appeared to shrug off any immediate worries of further contagion, however. The Dow Jones Industrial Average finished 0.3% higher to 33,171, while the S&P 500 closed down a modest 0.1% to 3,971.
Other action in the stock market today:
- The Nasdaq Composite declined 0.6% to 13,059.
- The small-cap Russell 2000 plunged 2.8% to 2,158.
- U.S. crude oil futures improved by 0.8% to $61.44 per barrel.
- Gold futures declined 1.2% to $1,712.20 per ounce.
- Bitcoin prices were completely disconnected from the rest of the day's malaise, jumping 7.1% to $57,642. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
Why It Pays to Diversify
These recent drops in the likes of ViacomCBS and Credit Suisse are a searing reminder of risks we often take for granted in stock investing.
Sure, as just about any bear turn (see: 2020) proves out, the entire market is always susceptible to sharp declines. Risk is everywhere. But individual stocks can drop farther and faster – and on triggers as unforeseeable to retail investors as a hedge fund's sudden belly flop.
That's why investors looking for stability and reliability can do well to build a portfolio core of diversified funds holding dozens, hundreds or even thousands of stocks or bonds, then use individual "satellite" holdings to try to generate a little outperformance here and there.
If you're an ETF investor, this group of 8 Vanguard ETFs exemplifies a variety of core holdings; or you can find core ETFs (and tactical plays) outside the Vanguard family in our 21 best ETFs for 2021. If you prefer mutual funds, you can check out top 401(k) options here.
But if you're not constrained to a work-sponsored program, consider our "Kip 25" instead. This list of 25 low-cost, no-load mutual funds is a who's who of Buy-worthy actively managed products, covering a number of stock and bond strategies.