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(Bloomberg) — The world’s biggest money managers are poised to offload up to $100 billion in stocks in the final weeks of the year, adding to a sell-off that has been frozen since Jerome Powell’s unequivocal message that policymakers will tighten their grip. Risk of job cuts and economic collapse.
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Despite this week’s losses, stocks have gained more than a quarter, undercutting their value against other asset classes and forcing managers to sell to meet targets with tighter allocation mandates. According to JPMorgan Chase & Co. And according to StoneX Financial Inc, bonds can be used by sovereign wealth, pension and balanced mutual funds.
By the end of December, sovereign wealth funds could sell about $29 billion in stocks, while U.S. defined benefit pension plans will have to shift up to $70 billion from stocks to bonds to meet their long-term goals and return to September levels. JPMorgan estimates.
Pension and sovereign wealth funds, the backbone of the investment community, typically adjust their market exposure quarterly to 60% stocks and 40% bonds.
“The recent equity market correction and bond rally is consistent with the rebalancing hypothesis,” said Vincent Delourd, macro strategist at StauntonX, who projects that some rebalancing has already occurred this week. “Investors had to sell stocks and buy bonds to get back to the target. It makes sense that this will last until the end of the year.
The corrections away from stocks followed the S&P 500’s 6 percent slide from its November peak, adding to the expected forced selling in trend demand to $30 billion.
The latest blow came on Wednesday when the Federal Reserve warned interest rates would continue to be raised to curb inflation at the end of its final 2022 meeting, dimming hopes that the central bank is preparing to wind down its aggressive tightening campaign. Instead, policymakers indicated that they would continue to move higher than the market expected.
According to JPMorgan calculations, Japan’s $1.6 trillion GPIF, the world’s largest pension fund, would need to sell $17 billion of shares to return to its target asset allocation. Norway’s $1.3 trillion oil fund could move $12 billion from stocks to bonds.
A spokesman for Norges Bank Investment Management, which manages the Norwegian Oil Fund, declined to comment. A GPIF spokesperson did not immediately respond to an out-of-hours email seeking comment.
The predicted sell-off marks a reversal from the trend of the first and second quarters, when large funds were forced to buy stocks and saw strong, but short-lived, rallies. JPMorgan strategist Nikolaos Panigirtzoglou said the last time such funds will unload shares is in the fourth quarter of 2021.
Even so, this month’s sales may pale in comparison to last December.
Panigirtzoglou said: “The estimated rebalancing flow was almost twice the estimated for the current quarter.
–With help from Sid Verma.
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