Home Finance JP Morgan sees portfolio rebalancing lifting U.S. stocks 7% next week

JP Morgan sees portfolio rebalancing lifting U.S. stocks 7% next week

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A view of the outside of the JP Morgan Chase & Co. company headquarters in New York Metropolis Could 20, 2015. REUTERS/Mike Segar/File Picture

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NEW YORK, June 24 (Reuters) – U.S. equities might see a 7% transfer up subsequent week as traders rebalance their portfolios after a brutal first half of the yr, J.P. Morgan’s chief international markets strategist, Marko Kolanovic, stated on Friday.

Subsequent week marks the tip of the month, second quarter and first half of the yr, making for a busy time for traders with fixed-weight portfolios, who should rebalance their asset publicity to account for previous market strikes.

Whereas these rebalances usually don’t are likely to turn out to be principal drivers for markets, they’ll assume a extra vital position when market strikes over rebalance home windows had been massive and in the identical course, as is the case now, J.P. Morgan strategists led by Kolanovic stated in a word on Friday.

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The S&P 500 (.SPX) is down about 14% for the quarter-to-date interval, and down 18% for the yr, as traders have been spooked by aggressive Federal Reserve rate of interest hikes geared toward curbing surging inflation. In the meantime, bonds, which normally provide traders succor in instances of volatility have additionally bought off, as rising inflation unsettled traders.

Bloomberg’s U.S. Mixture Bond Index is down about 12% for the yr, and off about 6% to this point this quarter.

“On prime of that, the market is in an oversold situation, money balances are at report ranges, and up to date market shorting exercise reached ranges not seen since 2008,” Kolanovic stated.

Based mostly on how markets reacted throughout current rebalancings, together with on the finish of the primary quarter and close to the tip of Could, when shares pared losses because the quarter and month-end durations approached, Kolanovic expects equities to rise 7% subsequent week and bonds to really feel average downward strain.

“After all, rebalances aren’t the one drivers and the estimated transfer is assuming ‘all else equal,’” Kolanovic stated.

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Reporting by Saqib Iqbal Ahmed; Enhancing by Paul Simao

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