J.P.Morgan Flag Risk For Equities Into Quarter-End On Rebalancing

J.P.Morgan see "some vulnerability in equity markets into quarter-end from pension funds entities as well balanced mutual funds selling equities and buying bonds to rebalance towards their target equity/bond allocations. Balanced mutual funds including 60:40 funds, a close to $7.5tn AUM universe globally, tend to rebalance over 1-2 months or so. The lesson from last Nov/Dec is that balanced mutual funds exhibit flexibility and they do not necessarily rebalance every single month. During the previous quarter, they appear to have postponed rebalancing for Nov-end or Dec-end and to have waited until January to de-risk/rebalance. In our opinion given balanced mutual funds had de-risked in January, it would have been too soon to rebalance again in February. As a result we believe that they have likely postponed any pending rebalancing to March. Assuming they were fully rebalanced at the end of January, which is a reasonable hypothesis given the reduction in their betas in January, and by taking into account the performance of global equities and bonds since then, we estimate around $107bn of equity selling by balanced mutual funds globally into the end of March in order to revert to their 60:40 target allocation."