US stocks hover near record highs as bank losses temper gains

United States stocks stabilised in afternoon trading Monday and hovered near the record highs they set last week, but losses for big banks tempered gains.

The Dow Jones Industrial Average closed up 98.49 points, or 0.3 percent, to land at 33,171. The broader S&P 500 index – a proxy for the health of retirement and college savings accounts – lost 0.09 percent while the Nasdaq Composite Index ended the trading day 0.6 percent lower.

Financial stocks dropped to some of the market’s sharpest losses amid worries about how much pain big banks will take following soured trades made by a major US hedge fund. Stocks of energy producers were also weak after the price of crude oil edged lower.

Technology stocks also fell broadly as China announced more tax breaks to bolster its own chip sector. Gains for Facebook and other market heavyweights helped to limit the S&P 500’s losses.

Most stocks across Wall Street were falling, while Treasury yields rose. A widely followed measure of nervousness in the stock market climbed 10 percent, but the VIX Index, which shows how much volatility traders are bracing for from the S&P 500, remains close to its lowest level since the coronavirus pandemic rocked markets a year ago.

“It’s high, which indicates people are nervous, but it’s not panicky,” said Tom Martin, senior portfolio manager with Globalt Investments.

The movements mark the latest ebb for Wall Street, which has been mostly climbing in a series of stops and starts. Supporting the market have been rising expectations that a supercharged economic recovery is on the way thanks to COVID-19 vaccinations, immense spending by the US government and continued low rates from the Federal Reserve. Weighing on stocks at the same time, though, are worries about a coming rise in inflation and possibly too-ebullient prices across the market.

Several key reports on the economy are scheduled for this week, which could help show whether stocks deserve the lofty prices they’ve reached. Among the headliners is Friday’s jobs report, where economists expect to see a big acceleration in hiring.

On Wednesday, President Joe Biden will also give details about his proposal to rebuild roads, bridges and other infrastructure. Shares of raw-material producers have rallied recently on rising expectations for infrastructure spending by Washington, even though many past presidential administrations have failed to make that happen.

On Monday, though, the market’s spotlight was squarely on financial companies after Japanese bank Nomura Holdings and Swiss bank Credit Suisse said they’re facing potentially significant losses because of their dealings with a major client, though the exact magnitude is still unclear.

Nomura estimated the claim against its client could be about $2bn.

Credit Suisse said that it “and a number of other banks” are exiting trades they made with a significant US-based hedge fund, which defaulted on a “margin call” last week. A margin call happens when a broker tells a client to put up cash after it borrowed money to make trades. Neither Credit Suisse nor Nomura named the client, but news reports identified it as New York-based Archegos Capital Management.

Shares of Credit Suisse and Nomura each fell at least 16 percent in their home countries, and US banks got caught in the downdraft as investors question whether the soured trades will stay isolated or have a more widespread effect through the system.

“This is sort of an example of the leverage you don’t see,” Martin said. “We all know there’s a fair amount of debt out there, but what we don’t know is how much of this is out there.”

Morgan Stanley fell 2.5 percent, and financial stocks across the S&P 500 lost 1 percent for one of the sharpest losses among the 11 sectors that make up the index.

Energy stocks in the S&P 500 fell 1.4 percent while the price of US crude made small gains of 0.8 percent to $61.43 per barrel. Brent crude, the international standard, rose 0.7 percent to $64.89 per barrel.

On the winning side was Boeing, which rose 1.8 percent after Southwest Airlines said it will order 100 737 MAX aeroplanes. Regulators in the US and other countries have cleared the plane model to resume flying after it was grounded worldwide in 2019 after two crashes that killed 346 people.