According to JPMorgan Chase, the stock market will suffer rebalancing sales. JPMorgan's experts say the world’s biggest money managers are set to unload as much as $150 billion of stocks over the next few weeks.
JPMorgan Chase predicts that the forthcoming wave of rebalancing sales could have a serious influence on sovereign wealth and pension funds. Such portfolios will tilt back in favor of bonds, the largest rebalancing flows in the asset class.
Currently, many institutional investors are assessing their market exposures. They check whether they meet allocation limits between stocks and bonds every quarter and at the end of every month. This quarter, the stock market has outperformed the bond market. Therefore, portfolio managers intend to reduce their stakes in stocks.
“The last time we had such a gap with equities and bonds in opposite directions was in the fourth quarter of 2021. This rebalancing flow could create around a 3% to 5% correction in equities,” JPMorgan Chase stressed.
Wealth managers usually rebalance assets in their portfolios to have 60% of stocks and 40% of bonds. However, the situation has changed. Thus, MSCI’s all-country stock index grew by 5% while the Bloomberg global-aggregate bond index dropped by 1.3%.
In this light, US pension funds managing $8.5 trillion of assets will have to shift up to $185 billion from stocks and buy a similar amount of bonds.
At the same time, the Norwegian oil fund that manages some $1,3 trillion could move $18 billion from stocks to bonds. The Swiss National Bank could sell stocks worth $11 billion.
