With month and quarter-end just two weeks away, Wall Street shifts its collective attention to a recurring phenomenon, namely the quarter-end rebalancing where outsized stock buying or selling can lead to short-term market havoc. The reason is that in quarters in which stocks outperform bonds – as they have in Q3 – funds need to rebalance by selling stocks to remain in compliance with their position mandates (vice versa in quarters when bonds outperform stocks).
So for those curious how the quarter-end landscape looks, JPMorgan’s market flows guru, Nick Panagirtzoglou has some bad news. When looking at the exposure of some of the biggest “rebalancing” whales including US defined benefit pension plans, Norges Bank, i.e. the Norwegian oil fund, and the Japanese government pension plan, GPIF, the JPM strategist estimates roughly $200 billion in forced selling on deck. Here are the details: