S&P's Best Earnings Run Since 1999 Meets Rebalance
Comment of the Day

October 26 2021

Commentary by Eoin Treacy

S&P's Best Earnings Run Since 1999 Meets Rebalance

This article from Bloomberg may be of interest to subscribers. Here is a section:

The S&P 500 has advanced 5% since JPMorgan Chase & Co. kicked off the earnings season nine days ago, in the best start to a reporting cycle since the dot-com mayhem 88 quarters ago. Along the way, the index slipped only once, with a 0.1% drop on Friday doing little to derail the benchmark from its best month since the election.

Now institutional investors with large stock and bond holdings will need to balance out their positions, buying dips on losers and taking profits on winners. How big will the impact be? A regression analysis done by strategists at BNP Paribas SA shows that the outflow needed to compensate for a divergence between this month’s drop in the bond market and rally in stocks could translate into a 2.6% decline in the S&P 500 when the rebalancing takes place.

Eoin Treacy's view

End of month reweighting of portfolios is a predictable event and represents a solid rationale for the recent bounce in Treasury futures. It’s unlikely to contribute to more than temporary strength because none of the underlying factors have changed.

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