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Asset Watch

Should we be worried about the S&P 500?

 

Tuesday, June 28, 2022

The bulls are back on Wall Street, as the S&P 500 ended last week up by more than 6%. JPMorgan’s co-head of global research Marko Kolanovic told clients on Jun. 24 that pension fund rebalancing could add “a ~7% move up in equities [this] week.”
Pension funds have strict allocation limits, and this week marks the quarter and month-end. U.S. stocks have fallen sharply in 2022, so 60/40 asset managers may have to sell bonds and buy stocks to return their portfolio weights back to the desired positions. When you add the market’s “oversold condition,” Kolanovic believes that “rebalances are not the only drivers and the estimated move is assuming ‘all else equal.’”

But the S&P 500 is up against material resistance. The 20-day moving average is less than 1% above the Jan. 24 close, and the key level has stopped six of the last eight rallies since the breakdown in early January. As a result, the S&P 500 will have to clear this hurdle for the relief rally to continue.

A breakout above the 20-day MA also implies more than a 5% upside before we hit next-level resistance of 4,152. The level is near the May and June highs, as well as the February and March lows.

So, will investors look to front-run the potential rebalancing, or has the relief rally already run its course?


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