$250 billion in “rebalancing” inflows could save stocks by the end of June, says JPMorgan

As stock market strategists at Bank of America and Morgan Stanley turn increasingly bearish, JPMorgan’s equity research department has churned out another bullish note for the bank’s clients, advising them on the potential for massive month- and quarter-end rebalances, sparking a sustained stock rally, pushing the gap between US benchmarks and the bear market territory that the S&P 500 index was toying with late last week is widening.

JPMorgan Equity Quants’ team, led by Nikolaos Panigirtzoglou, told the bank’s clients that more than $250 billion could potentially flow into equities by the end of June as American mutual funds and pension funds, along with foreign pension and sovereign wealth funds, “rebalance ‘ by buying stocks and selling bonds to offset the recent fall in equities.

In their latest report on capital flows and liquidity, the team expects “balanced” mutual funds (i.e. the principles of modern portfolio theory) to buy between $34 billion and $56 billion.

But even bigger than the universe of mutual funds is the world of defined-benefit pension funds, which Panigirtzoglou and his team believe could invest up to $167 billion in US stocks by the end of June.

Those funds have total assets under management of $7.5 trillion, according to JPMorgan, and while pension funds tend to rebalance more slowly than mutual funds, the JPMorgan team suspects they could underperform the Eightball in April’s rebalance, which is more There is leeway for purchases when we enter the summer months.

Finally, analysts at JPMorgan expect an additional $40 billion in inflows from big foreign buyers like Norges Bank (which controls Norway’s massive sovereign wealth funds), the Swiss National Bank (which holds a large portfolio of US stocks), and Japanese pension funds.

All told, that’s potentially more than $250 billion in inflows that could bolster Wall Street stocks. Since algorithmic traders like Commodity Trading Advisors often trade based on momentum, the initial upside in stocks caused by these inflows could potentially trigger a positive feedback loop that could see stocks recover more than half of their losses since Balance at the beginning of the year – at least, according to JPMorgan.

Certainly, the JPMorgan team had expected a significant rise in share prices on March’s rebalancing, a demand that didn’t quite materialize, although global equities staged a brief rally and posted a modest gain for the month. her only monthly win so far this year.

JPMorgan strategists, notably Panigirtzoglou and his colleague Marko Kolanovic, have been among the loudest bullish voices on Wall Street so far this year. But as noted above, other Wall Street strategists are far more dovish: For example, Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, said in a note to clients issued Monday that downward earnings revisions could cause stocks to plummet by more 5% could yield 10% of their value. $250 billion in “rebalancing” inflows could save stocks by the end of June, says JPMorgan

Brian Lowry

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