Funds That Saved Stocks in December Seen Coming to Rescue Again

(Bloomberg) -- Stock traders battered by a brutal three weeks may get some respite in coming days thanks to the same group of investors that saved equities from a bear market in December.

U.S. pension funds that rebalance their holdings on a monthly basis will need to buy more than $7 billion of American shares to return to prior asset-allocation levels following the latest market rout, according to estimates from Credit Suisse Group AG. Their purchases would provide a boost of 1.5% to the S&P 500 Index, separate estimates from JPMorgan Chase & Co. showed.

The inflows would be a welcome relief after an escalation in U.S.-China trade tensions sent the S&P 500 barreling toward its worth month this year and the longest streak of weekly losses since December. The benchmark index has declined 4.1% this month, trailing a 0.9% gain in the Bloomberg Barclays U.S. Aggregate Bond Index.

While stocks’ underperformance pales in comparison to December, it’s still one of the largest seen over the past five years. With U.S. stock exchanges closed Monday for Memorial Day, the market may be susceptible to a bigger-than-expected impact as funds try to settle trades in a holiday shortened week amid thin liquidity, according to JPMorgan.

“Pension rebalance may be a tailwind for the market into month-end,” JPMorgan strategists Bram Kaplan and Marko Kolanovic wrote in a note. “We see a similar but less acute set-up as in December.”

In the final month of 2018, equity buying from pension funds estimated at $60 billion helped jump-start a post-Christmas rally. The S&P 500 then advanced in the following four months, hitting a record high at the end of April.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net;Joanna Ossinger in Singapore at jossinger@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Brendan Walsh, Rita Nazareth

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