Bloomberg News reports that the biggest money managers of the world look poised to revive stocks that are wilting with $250 billion of investments that might spark buying by quant-momentum traders- adding 10% to equity values by June end.
The positive forecast on stocks
JPMorgan Chase & Co. is projecting that sovereign wealth, balanced mutual funds, and pension funds will be tilting their portfolios in favor of asset class in the forthcoming weeks to meet allocation targets, in the largest drive of rebalancing since the first quarter of 2020.
The new allocations could also encourage the risk of reversal among the Commodity Trading Advisors- an influential group of trend-chasing systematic investing individuals that are presently bearishly placed.
All of this could influence the price of stocks in the present climate of poor liquidity, as the investors are struggling to buy and sell in size without moving the underlying market.
Given how deep the low equity market is at present, the cumulative impact of the rebalancing flow on equities by June end could exceed 10%, revealed JPMorgan strategist Nikolaos Panigirtzoglou in an interview.
As is being touted by Panigirtzoglou the optimistic scenario, a widely followed expert on Wall Street capital flows, is coming as US stocks were found flirting with the bear market in the past week as threats to growth in the economy and Federal Reserve hawkishness are sparking severe anxiety.
The strategists of JPMorgan have been for months beating the bullish drums, making them outliers in a growing bearish market. Strategist at Morgan Stanley, Michael Wilson, warned on Monday that the main US stock gauge might drop 13% from the present levels amidst growing risks to the expansion of the economy. Participants of the MLIV survey anticipate a further decline of 10% from the closing level of Friday.
JPMorgan predicted a boost in the global markets of 10% from a rebalancing of the quarter from March flows. While it proved over-optimistic, the MSCI World Index nevertheless clocked up a 2.5% advance, the only month of gain throughout the year.
Bloomberg News reports that sovereign wealth funds and pension funds that form the investing community’s backbone typically rebalance their market exposure every quarter to get back to the allocations of 60% stocks and 40% bonds.
The drop in the stock market values has now left them short of the targets. To rebalance, they will start moving about $45 billion to stocks from the bonds by the end of the month and then move another $207 billion by June end, as per US Bank.
Wave of Rebalancing
The US-defined pension plans that have been found to manage $7.5 trillion of assets would need to shift up to about $167 billion into equities to meet the long-term targets and bring them back to March levels.
The S&P 500 is down by more than 18% from the high and slid into a bear market during the session on Friday. The sell-off sent the index deeper into a decline for the seventh week that would record the longest streak since the dot-com bubble burst more than twenty years ago.
