"We See Vulnerability": JPMorgan Estimates Up To $310 Billion In Forced Selling By Year-End

Earlier this week we reported that with month-end fast approaching, banks are starting to publish their estimates of what upcoming pension rebalancings will mean for stock and bond flows.

The first such forecast came from Goldman Sachs (GS), whose month-end pension rebalancing published on Wednesday estimated that a net $36 billion of equities to sell following a month of substantial outperformance of stocks vs bonds. Notably, according to Goldman, this is the fourth largest sell estimate on record going back to 2000, and ranks in the 96th percentile among all buy and sell estimates in absolute dollar-value.

Not to be outdone, JPMorgan (JPM), which has accumulated a track record of estimating rebalancing flows, writes that according to its own calculations, the $7 trillion universe of balanced mutual funds is on pace for a far greater month and quarter-end selling spree than the one estimates by Goldman --greater as much as 10x.

In response to client interest sparked by the Goldman report, JPM's Nick Panigirtzoglou writes that as we approach month-end, "the equity rebalancing flow question is resurfacing in our client conversations" to wit: "How much of equity rebalancing flow should we expect into month-end, i.e. into the end of November? And how much more rebalancing into quarter-end, i.e. into the end of December?"

To answer this question, the JPMorgan strategist look at the four key multi-asset investors that have either fixed allocation targets or tend to exhibit strong mean reversion in their asset allocation. These are - in addition to the defined benefit pension plans previously highlighted by Goldman - also mutual funds, such as 60:40 funds, the Norwegian sovereign/oil fund, i.e., The Norges Bank, and lastly the Japanese government pension plan, GPIF.

Balanced mutual funds including 60:40 funds, a close to $7 trillion AUM universe globally, tend to rebalance relatively more quickly on a monthly basis or so.

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