U.S. stock index futures pointed to a lower open for Wall Street on Monday after a surge in the previous session, as global banks said they faced potential losses from a hedge fund’s default on margin calls.
Shares in Morgan Stanley (NYSE:MS) tumbled about 5% after the Financial Times reported it had also sold billions of shares, while Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), JPMorgan Chase & Co (NYSE:JPM), Goldman Sachs (NYSE:GS) and Wells Fargo (NYSE:WFC) & Co dropped between 1.6% and 2.5%.
The news has raised concerns about whether the full extent of Archegos’ apparent wipeout has been realized or whether there was more selling to come from other lenders.
Nomura still has positions to unwind, Bloomberg reported, citing a Japan government official.
Shares in Discovery (NASDAQ:DISCA) Inc, U.S.-listed shares of Tencent Music , ViacomCBS (NASDAQ:VIAC), Baidu (NASDAQ:BIDU) and VIPShop, all linked to Archegos Capital, gave up early gains to shed 0.6% and 5.8%. Theses stocks lost between 30% and 50% of their values last week.
“It’s a black eye for the financial industry because it suggests that there still may not be a full handle on risk control when it comes to leveraged trading,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
“This seems like a pretty specific case. It could lead to increased regulation … but the impact on broader markets is going to be small.”
Wall Street’s main indexes surged over 1% in a late-session rally on Friday as investors looking to rebalance their portfolios at the end of the quarter, piled into economy-linked banks, energy, materials as well as technology names.
The Dow and the S&P 500 are less than 1% from their record highs, while the tech-heavy Nasdaq is still about 7.1% from its February all-time high.
“We’ve come far really fast and I wouldn’t be surprised to see a pause … especially after the rally that we’ve had and because we don’t have earnings season yet right,” said Stephanie Link, chief investment strategist at Hightower Advisors.
At 08:40 a.m. ET, Dow E-minis were down 188 points, or 0.57%, S&P 500 E-minis were down 21.75 points, or 0.55% and Nasdaq 100 E-minis were down 40.75 points, or 0.31%.
Planemaker Boeing (NYSE:BA) Co rose 2.6% after reaching a deal with U.S. budget carrier Southwest Airlines (NYSE:LUV) Co for 100 orders for a variant of the 737 MAX aircraft. Southwest’s shares gained about 0.5%.
Bitcoin prices gained about 4% after Visa Inc (NYSE:V) said it would allow the use of the cryptocurrency USD Coin to settle transactions on its payment network, the latest sign of growing acceptance of digital currencies by the mainstream financial industry.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.4% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.