JPMorgan says rebalancing could mean $300 billion exits stocks

The strong equity performance so far this month means large investors like balanced mutual funds may need to shift money into bonds before year-end

Rebalancing flows may lead to an exodus of around $300 billion from global stocks by the end of the year, according to JPMorgan Chase & Co.

Large multi-asset investors may need to rotate money into bonds from stocks after strong equity performance so far this month, strategists led by Nikolaos Panigirtzoglou wrote in a note Friday. They include balanced mutual funds, like 60/40 portfolios, U.S. defined-benefit pension plans and some big investors like Norges Bank, which manages Norway’s sovereign wealth fund, and the Japanese government pension plan GPIF, the strategists said.

“We see some vulnerability in equity markets in the near term from balanced mutual funds, a $7 trillion universe, having to sell around $160 billion of equities globally to revert to their target 60:40 allocation either by the end of November or by the end of December at the latest,” the strategists wrote.

If the stock market rallies into December, there could be an additional $150 billion of equity selling into the end of the month by pension funds that tend to rebalance on a quarterly basis, they added.

Global stocks have outperformed bond returns quarter-to-date

An MSCI gauge of global stocks reached a record on Nov. 16. It’s up more than 10% this month as positive news about COVID-19 vaccines emerges and as concerns about the U.S. election began to fade. The Bloomberg Barclays Global-Aggregate Total Return Index has risen around 1.5%.

[More: JPMorgan prepares for post-election market shift by cutting tech]

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