Mark Steward Young

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What do you think these folks are all so scared about?

$GS End of The Quarter Rebalance Goldman’s month-end/quarter-end pension estimate is a meaningful potential flow headwind, but it is important to understand what the number represents. Goldman’s model estimates that U.S. pensions may need to sell about $32 billion of U.S. equities, made up of roughly $10 billion of normal month-end rebalancing plus another $22 billion tied to quarter-end rebalancing. Goldman says that size ranks in roughly the 95th percentile of all buy/sell estimates over the past three years and the 97th percentile going back to January 2000, so this is an unusually large modeled rebalance rather than routine month-end noise. The reason is mechanical: when equities outperform bonds, balanced pension portfolios become overweight stocks relative to their target allocations. To bring those portfolios back to policy weights, pensions may sell equities and buy fixed income. Goldman has used the same framework in prior months; for example, in May it modeled about $14 billion of equity selling/bond buying after stocks materially outperformed Treasuries. What makes this month more notable is the broader flow backdrop. A secondary summary of Goldman’s desk work says 87% of S&P 500 companies are already in buyback blackout, rising toward 93%, which means one of the market’s traditional sources of demand is temporarily diminished just as pension rebalancing supply may hit. That same summary says systematic strategies could still provide some buying, so this is more of a large supply-versus-demand tug-of-war than a guaranteed selloff.