JPMorgan Sees $100 Billion Quant Buying Should Rally Last

  • S&P 500's break above 2,100 could induce trend-following funds
  • Most quant funds seen having increased exposure to equities

Why 2100 Is an Important Number for S&P 500

The nine-week rally that has restored $3 trillion to U.S. equity values could potentially spur further demand from a group of quantitative traders who make buy or sell decisions based on price trends, according to JPMorgan Chase & Co.

Their purchases could reach as much as $100 billion should the Standard & Poor’s 500 Index rise and stay above 2,100, strategists including Dubravko Lakos-Bujas and Marko Kolanovic estimated in a note published Tuesday. The benchmark gauge just exceeded that threshold for the first time since December, adding 0.3 percent to 2,100.80 at 4 p.m. in New York.

Funds including commodity trading advisers and users of volatility targets have pared their bearish bets on U.S. stocks, buying shares amid a rebound that has pushed the S&P 500 up 15 percent from its February low, according to JPMorgan. While the amount of potential fresh buying is only a fraction of the $24 trillion U.S. market capitalization, JPMorgan has attributed 2015’s summer selloff and this year’s rout in equities in part to robotic sell strategies pursued by funds that are insensitive to valuation.

“While trend following strategies (CTAs) have covered all of their equity shorts, they could go outright long equity and push the market higher,” the strategists wrote in the note. “More significant inflows could materialize if the S&P 500 rises and holds above ~2100 level, as long-term momentum signals turn positive.”

While a continued advance may encourage investors to chase gains, the above-average level of stock holdings by these funds also means the market is vulnerable to outflows should shares reverse course and retreat, according to JPMorgan. In an April 14 note, Kolanovic estimated that trend following strategies could sell as much as $120 billion of stocks if the S&P 500 falls below 2,025.

U.S. stocks rose for the fifth time in six days amid better-than-forecast results at companies from Goldman Sachs Group Inc. to UnitedHealth Group Inc. and oil rose. The gauge is less than 2 percent from a record 2,130.82 reached last May.

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