© Reuters.
Investing.com – Jerome Powell’s clear message to markets not to be complacent in the face of inflation appears to have already reached managers of the world’s major funds.
According to news reports, the world’s biggest money managers are set to unload as much as $100 billion in equities in the last few weeks of the year.
Stock sales surged further after Jerome Powell’s clear message that policymakers will continue to step up tightening amid risks of job cuts and recession.
sole beneficiary
Despite this week’s losses, shares gained during the quarter, increasing their value relative to other asset classes and forcing managers with tough allocation mandates to sell them to meet targets.
The bonds are a potential beneficiary of the sale of sovereign wealth, pension and balanced mutual funds looking to rollover their fixed-income holdings, according to JPMorgan Chase & Co. and StoneX Financial Inc.
what happens?
As the end of December 2022 approaches, sovereign wealth funds could sell nearly $29 billion worth of shares, according to JPMorgan (NYSE:) estimates.
While in the US defined pension plans must convert up to $70 billion from stocks to bonds to meet their long-term goals and bring them back to September levels.
The pension funds and sovereign wealth funds that form the backbone of the investment community typically rebalance their market exposure each quarter to achieve a mix of 60% equities and 40% bonds.
already started
“The recent equity market correction and bond rally are consistent with the rebalancing assumption,” said Vincent Delward, macrostrategist at StoneX, who expects a rebalancing to have already occurred this week.
The StoneX macrostrategist added, “Investors had to sell stocks and buy bonds to get back on target and logically this would continue through the end of the year.”
The stock adjustments would double about $30 billion in expected forced sales from trend-chasing volumes after a slide that sent the S&P 500 down nearly 6% from its November high.
last shot
The final blow came Wednesday as Chairman Powell warned that interest rates will stay high to tame inflation at the end of the last Fed meeting of 2022.
The Fed dashed hopes that the central bank was preparing to scale back its aggressive tightening campaign. Instead, policy makers signaled that they would continue to rally to a higher peak than the market expected.
Japan’s GPIF, the world’s largest pension fund at $1.6 trillion, would need to sell $17 billion worth of stock to return to its target asset allocation, according to JPMorgan calculations.
Norway’s $1.3 trillion oil fund could convert $12 billion from stocks into bonds, according to JP (EGX:) Morgan.
The inflation war continues
The San Francisco Fed chairman said over the weekend that monetary policy makers are committed to reducing inflation levels, noting that the bank is still a long way from meeting that goal.
“We still have a long way to go, we are far from the price stability goal,” Mary Daly added at a virtual event hosted by the American Enterprise Institute.
Daly believes that the labor market suffers from imbalances, as anyone who wants to find a job will be able to do so easily, but companies suffer from difficulties in finding employees.
The Federal Reserve raised interest rates by 50 basis points this week to 4.25% and 4.5%, after 4 consecutive 75 basis point hikes, and the bank expected interest rates to peak by 5.1% next year, versus a previous forecast of 4.6%.