Goldman Sachs Warns: Month-End Stock-Bond Rebalancing Looms in US Markets, $23 Billion in Stocks to Be Sold Amid Significant Pressure
Goldman Sachs estimates that, influenced by recent trends in the US stock and bond markets, American pension funds need to sell approximately $23 billion worth of US stocks. By absolute amount, this ranks at the 83rd percentile over the past three years and the 92nd percentile since January 2000; by net amount, it sits at the 11th percentile over the past three years and the 4th percentile since January 2000. Combined with waning CTA demand, Goldman Sachs believes significant pressure is building for US equities
As the month-end approaches, Goldman Sachs' trading desk model estimates that, influenced by recent trends in the US stock and bond markets, American pension funds need to sell approximately $23 billion worth of US stocks. At the same time, an equivalent amount of capital is estimated to be used for buying bonds.
In the first week of April, the rebalancing scale was negligible, with estimated sales of only $2-3 billion. However, following a sharp market rally on April 8 and a 2.5% gain in the S&P 500, the estimated sell-off jumped to $10 billion. As the market continued to rise thereafter, the figure climbed steadily, eventually stabilizing at around $23 billion.
Additionally, on April 10, a triggering event occurred, with pension funds estimated to have sold $21 billion in stocks that day—this amount is not included in the aforementioned month-end rebalancing estimate.
Where does this April rebalancing stand historically? According to Goldman Sachs' calculations:
- A sell-off size of $23 billion, by absolute amount: ranks at the 83rd percentile among all buy-sell estimates over the past three years, and at the 92nd percentile dating back to January 2000.
- A sell-off size of $23 billion, by net amount: ranks at the 11th percentile over the past three years, and at the 4th percentile dating back to January 2000.
Looking at the performance of major asset classes this month, US equities outperformed fixed income by 8.16%, with the S&P 500 achieving a total return of +8.95%, while the 10-year US Treasury posted a total return of +0.79%.
Combined with waning CTA demand, Goldman Sachs concludes:
CTA buyers' demand has entered its eighth inning (approaching the end), although they have been a key driver of the market over the past few weeks. In this context, such a large-scale asset rotation poses significant pressure on US equities, which are already at fragile highs, especially against the backdrop of a renewed strengthening in oil prices.
