JPM looking at month-end flows as a bullkiush factor next week.
Citing past research showing:
- rebalances from fixed-weight asset allocation portfolios, along with the reversion of option rolling-driven expiry week momentum, tended to cause the market to mean-revert into month-and quarter-end.
JPM say that
- equities have underperformed bonds month-to-date (but outperformed quarter-to-date) (by -5%)
- a large majority of these portfolios rebalance on a monthly rather than quarterly frequency …. historically, the monthly rebalance effect is over 5x stronger than the quarterly rebalance effect. Thus, the equity buying by monthly rebalancing portfolios (due to equity underperformance MTD) much more than fully offsets the selling by quarterly rebalancing portfolios, meaning these portfolios are expected to be net buyers of equities into month/quarter-end.
- we would expect rebalances by these fixed weight asset allocation portfolios to provide a tailwind to equities next week