The Clap
Following statements from the Fed indicating high interest rates in the coming year, money managers will be offloading up to $100bn of stocks as they look to rebalance their portfolios.
What
It is estimated that sovereign wealth funds will have sold around $29bn in stocks by the end of the month. In addition, pension funds will need to shift $70bn from stocks to bonds to hit their long-term targets.
The biggest reason is that sovereign and pension funds rebalance their portfolio every quarter to achieve a mix of 60% in stocks and 40% in bonds. This is in line with the current market conditions, as bond rates continue to grow, while the equity market sees a stock correction.
So What
The rebalancing is expected to force money managers to sell around $30bn in stocks in order to keep up with the changing trend in investment given the current market conditions.
This is a reversal of what happened earlier in 2022 when money managers allocated more to stocks to take advantage of strong rallies.
Now What
The S&P 500 is down around 6% so far from this past November.
