This was doing the rounds during US time, so ICYMI. Via comments from Marko Kolanovic, global head of macro quantitative and derivatives research at JPMorgan Chase & Co
Firstly, on US/ EZ divergence:
- Over the past few days, the equity market was fairly weak despite no real change in the macro fundamental outlook. The Fed has remained dovish, the US stimulus was released as planned, and the pandemic and vaccination in the US are steadily improving.
- The European COVID-19 situation is lagging behind that of the US and UK, which was broadly expected and well understood due to vaccination delays.
And US equities:
- Yet, if one looks at, for example, the Russell 2000, it has sold off more than 10% (market correction) in the last 10 days, and there is broad weakness across both cyclical and growth stocks. Many investors still like equities, but are afraid of month- and quarter-end rebalances that are broadly advertised as an event that will lead to equity selling. In fact, many investors stated they are looking to buy equities in April under this pretext.
And what to expect in the days ahead:
- there will be no monthly selling
- and indeed there could be buying of equities into month-end
- A lack of these flows, and broad anticipation of ‘month/quarter-end’ effect, could result in the market moving higher near term, all else equal.
Kolanovic believes recent trends in portfolio rebalancing have taken the bite out of quarter-end rebalancing:
- including tweaks to portfolios being more opportunistic rather than strictly at quarter-ends
- and reallocations geared towards volatility levels rather than fixed target weights for particular asset classes