Summary:
-
US stock markets to start lower
-
S&P500 futures back below 2860
-
Will month-end rebalancing come into play?
After pushing up to their highest level of the week, US equities fell back into the cash close yesterday evening with the markets still consolidating after the recent declines. There’s been some further selling seen this morning as European benchmarks have come back under pressure with the German Dax down by a little over 1% at the time of writing. There’s been some risk-off moves seen in bond and precious metals too with Silver on the rise once more and Gold trading back up towards the high seen on Sunday night/Monday morning.
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile app
Little has changed overall for the chart structure of the S&P500 in the past few weeks with the market continuing to respect the broader range from around 2814-2944. Closer to the current price Friday’s closing level of 2847 still represent an unfilled gap (in cash hours). Source: xStation
As we approach the end of August it is worthwhile being on the lookout for potential month-end flows. There can often be moves that are otherwise unexplained in the last few trading sessions of the month, caused by funds repositioning there portfolios. One key thing to look for is the performance of stocks relative to bonds during that period, as a large divergence suggests a great rebalancing impact. US bonds have outperformed US stocks by 6.3%pts in August which would by the 9th best month for fixed income compared to equities in the past decade.
The logic behind this suggests that firms with a fixed mandate Stock:Bond ratio (EG 80:20, 60:40 etc) will now be in a position where they are underweight stocks and overweight bonds. Therefore the rebalance would require the selling of bonds and the buying of stocks. This is not an exact science as some firms have different criteria for rebalancing but could be something worth keeping an eye on in the coming sessions.
The strong outperformance of bonds over stocks so far this month could be seen to suggest that a rebalancing is due and this would see additional buying pressure in equities. Source: Bloomberg
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
