An analyst from JPMorgan Chase believes the stock market will soon witness the exit of billions of dollars in capital after the fierce rally since March.
JPMorgan strategist Nikolaos Panigirtzoglou say he believes institutional investors are preparing to rebalance their portfolios to meet their allocation goals, Bloomberg reports.
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 asset allocation mandates that limit their exposure to any particular asset class.
Panigirtzoglou says the recent stock market rally has pushed institutions’ portfolios above their thresholds and they now need to move $150 billion worth of holdings to invest in the consolidating bond market.
“The last time we had a gap like that with stocks and bonds going in opposite directions was in the fourth quarter of 2021.
This rebalancing flow could trigger a correction of about 3% to 5% in equities.”
The S&P 500 is up nearly 15% since March.
Meanwhile, the iShares Core US 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 period.
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