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JPMorgan’s Kolanovic Sees a 7% Boost for Stocks From Rebalancing

  • Monthly, quarterly event occuring in period of poor liquidity
  • Risky assets may be poised to ‘recover most of their losses’

JPMorgan Chase & Co.’s Marko Kolanovic, a steadfast bull on US equities during this year’s selloff, is calling for stocks to rise 7% next week as pension and sovereign wealth funds rebalance their portfolios.

These money managers that form the backbone of the investing community typically rebalance their market exposures every quarter in order to obey strict allocation limits between stocks and bonds. Next week’s rebalancing, for the quarter and month end, could wield an outsize influence on stock prices in the current period of poor liquidity, which is now five times lower than the historical average, Kolanovic and colleague Bram Kaplan said a note on Friday.