The U.S. PMI data on Thursday poured cold water on the Fed’s interest rate hike, and the market’s expectations for interest rate hikes have cooled significantly. On Friday, U.S. stocks opened higher across the board and expanded their gains. JPMorgan Chase , who has been singing more and has been slapped in the face, seems to welcome the “dead bull”. “Spring” has come.
According to Goldman Sachs estimates, this month and this quarter, about $30 billion in U.S. stock assets may usher in a net inflow of funds from U.S. pension rebalancing, which means that U.S. stocks may usher in another potential catalyst for a surge.
U.S. pension rebalancing refers to the adjustment of U.S. fixed-income pensions based on market performance at the end of each month or quarter to maintain the allocation ratio of stocks and bonds. When the stock yield in the quarter is lower than the bond yield, the stock market allocation at the end of the quarter tends to perform better; the stock and bond yields differ greatly in the quarter, and the pension adjustment at the end of the quarter is due to rebalancing, which tends to increase the market fluctuation.
Marko Kolanovic, chief global markets strategist at JPMorgan, continued to hold his bullish view high, saying in a note with Bram Kaplan on Friday:
Month-end and quarter-end (pension) rebalancing could push stocks up 7%, pushing the S&P back well past 4,000 in the process.
Since 2022, the impact of asset rebalancing has been significant due to market movements and intensified liquidity crises. For example, at the end of the first quarter, the market was down about 10%, and in the final week of the quarter, it experienced a sharp rebound of about 7%; and in the most recent monthly rebalance, near the end of May, the market fell by 10% %, experienced a sharp rebound of 7% heading into the end of the month.
The broader market has fallen 21% this year, 16% in the second quarter and 9% since June. According to Kolanovic:
The rebalancing of all 3 lookback windows will strengthen and, based on historical data, will imply a rise in stocks of around 7% next week. Taking into account the current market liquidity, the futures market is used as a depth measurement, which is 5 times lower than the historical average.
Deutsche Bank fixed income analyst Steve Zeng estimates that public and private pensions will sell $85 billion in fixed income this quarter using a static-weighted model, saying:
Rebalancing of pensions may further weaken long-term interest rates, which have been hit by high inflation and a hawkish Fed, so the short-term steepening of the 5-year/30-year US Treasury yield curve is tactical Meaningful, especially if one thinks the data could be on the soft side for the next two weeks.
In addition, Goldman Sachs trader Matt Fleury also expressed “tactical” bullishness. He said that U.S. stocks are oversold and that U.S. stocks may rebound from now until early July, but he did not change his long-term bearish view. JPMorgan index trader Jason Hunter said in a note Friday:
The S&P 500 is trying to build on an initial rally from extreme oversold conditions achieved last week and needs to clear 3810-3900 resistance to confirm a short-term trend reversal.
Judging from today’s trading, the signal is skewed to bullish, and the existing deep oversold conditions and bullish momentum diverge from the signal, which means that the probability of additional upside going into July increases.
As for how this “dead cat rebound” will continue, Hunter said:
A potential bullish momentum signal on the weekly time frame that could be triggered this Friday will reinforce the upside bias in the early weeks of the summer. We believe this move will extend towards key resistance around 4100 during this time…