Markets Struggling To Gain Traction Amid Hedge Fund Failure

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Posted: Mar 29, 2021 12:52 PM
Markets Struggling To Gain Traction Amid Hedge Fund Failure

Source: AP Photo/Richard Drew

The market opened lower, and it has been struggling all session to gain traction.  Considering the surge higher into the close Friday, it seems the market is stuck between wanting to move higher, but also wondering how much more pain is to come from the unwinding of Archegos Capital fund. 

The family office, run by former Tiger Management portfolio manager Bill Hwang, imploded last week after big bets on traditional media companies Viacom and Discovery unraveled in a series of major declines, each triggering additional selling.

The situation brings to mind the infamous implosion of Long-Term Capital Management.  The fund, founded in 1994 by Wall Street bond trader John Meriwether and a couple of Nobel Prize winners, got off to a magnificent start until exposure to the financial crisis in Asia and Russian took its toll.

Year

Performance

1995

+21%

1996

+43%

1997

+41%

1998

Blow Up

In addition to that exposure, the fund relied heavily on enormous leverage.  The Federal Reserve would come in with $3.5 billion to stem the tide, but the damage was done to the fund, and the overall market.

I do not think this is a repeat. But the fact of the matter is, I do not know, as family offices are opaque operations with very little regulatory rules.   

Meanwhile, more hot stocks are getting hit again. I’m not sure if its portfolio selling to meet margin call, or a sense anything considered hot on March 1st should be sold no matter the consequence.   This is revealing more and more that it’s the so-called experts that have the least conviction in positions they supposedly bought on fundamentals.

Fundamentals have not changed in any way that matches declines in many hot stocks and sectors.

The market will have to fight through these jitters.  While that’s going on, traditional safe haven sectors are higher, joined by Communication Service, which in my opinion has huge value.

S&P 500 Index

 

-0.37%

Communication Services XLC

+0.51%

 

Consumer Staples XLP

+0.48%

 

Health Care XLV

+0.34%

 

Industrials XLI

+0.09%

 

Utilities XLU

+1.02%

 

There is a lot of excessive selling going on. Let's see if buyers will emerge into the close.