March 29 to April 1, 2021
What happened last week
Biden spending plan helped markets offset hedge-fund fallout
In a holiday-shortened week, markets got off to a slow start with a major U.S.-based hedge fund forced to liquidate a reported US$20 billion in stocks, and bond yields hitting a 14-month high on rising inflation concerns. Sentiment improved after President Joe Biden unveiled a US$2-trillion infrastructure plan.
All North American benchmark indexes finished slightly lower on Monday except for the Dow Jones Industrial Average, which closed with a modest 0.3% gain. Canada’s S&P/TSX Composite was dragged down by losses in the energy and technology sectors, closing down 33.36 points. The Nasdaq declined 0.6%, and the S&P 500 shed 0.1%.
Markets escaped Monday relatively unscathed considering the day saw one of the largest margin calls on record. A margin call occurs when the equity in a margin account falls below a certain level, and the investor – in this case, hedge fund Archegos Capital Management – must provide additional capital or securities to raise the account to the minimum maintenance margin. Archegos was unable to provide the necessary capital, forcing its lenders (some of the biggest banks around the world) to sell off a reported US$20 billion in stocks to try and recoup their losses. In the aftermath, U.S. banks Morgan Stanley and Goldman Sachs Group saw their shares drop 2.6% and 1.7% respectively. Switzerland’s Credit Suisse and Japanese lender Nomura Holdings Inc., who were slower to minimize their exposure to Archegos, were hit hardest. Collectively, shares in the two wealth management companies lost US$9 billion in market value.
Biden administration proposed another massive investment in U.S. economy
Markets declined again on Tuesday, but losses remained moderate. While investors appeared to shrug off the Archegos fallout, persistent inflation fears resulted in equity market-losses. This led to the yield on the U.S. 10-year Treasury note trading above 1.77% for the first time since January 2020, before ending the day at 1.72%. For investors, more impactful news came from President Biden on Wednesday.
In a speech from Pittsburgh, Biden outlined a US$2-trillion infrastructure proposal to put Americans back to work building roads, tackling climate change, and reinforcing front-line services, such as elder care. “It’s a once-in-a-generation investment in America, unlike anything we’ve seen or done,” Biden said. “It’s big, yes. It’s bold, yes. And we can get it done.” The immediate investor reaction was optimistic, pushing the S&P 500 and the Nasdaq back into positive territory. The Dow and the TSX declined slightly.
Canadian and U.S. economic data showed signs of recovery
On Wednesday, Statistics Canada reported that Gross Domestic Product (GDP) grew 0.7% in January. Growth for the first quarter of 2021 tracked above 5% on an annualized basis, beating the Bank of Canada forecast. In the U.S., the Conference Board’s consumer confidence index hit its highest level since the start of the pandemic, jumping 19.3 points to 109.7.
U.S. manufacturing data released on Thursday by the Institute for Supply Management also showed very positive signs for the U.S. economy. In March, factory activity jumped to a reading of 64.7 (up from 60.8 in February), the highest level since December 1983. The numbers, along with a strong day for technology stocks, helped push the S&P 500 above the 4,000-point mark for the first time ever. The TSX also closed with a new record high on Thursday, led by a rise in oil prices that got a boost following an OPEC+ meeting that showed confidence in the global recovery.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
|10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending April 1, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
Canadian balance of trade report: In January, Statistics Canada reported a trade surplus of $1.4 billion, the first surplus since May 2019, as exports surged at the start of the year. February data is expected Wednesday.
Circle these dates
- April 19:Federal budget (Canada)
- April 30: 2020 income tax filing deadline
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