A JPMorgan Chase analyst believes the stock market may soon witness the departure of billions of dollars in capital following its fierce rally since March.
JPMorgan strategist Nikolaos Panigirtzoglou says he believes institutional investors are preparing to rebalance their portfolios to satisfy their allocation targets, reports Bloomberg.
Institutions around the world invest in a variety of assets, including bonds, stocks and real estate, in an effort to diversify their holdings, and follow strict mandates on asset allocation that limit their exposure to a certain asset class.
Panigirtzoglou says the recent stock market rally has pushed the portfolios of institutions above their thresholds, and they now have to relocate up to $150 billion worth of positions to invest in the consolidating bond market.
“The last time we had such gap with equities and bonds in opposite directions was in the fourth quarter of 2021.
This rebalancing flow could create around a 3% to 5% correction in equities.”
The S&P 500 is up nearly 15% since March.
Meanwhile, the iShares Core U.S. Aggregate Bond ETF (exchange-traded fund), which is designed to broadly track the performance of the US investment-grade bond market, is up less than 1% over the same timeframe.
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