CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Stock market sell-off - quarterly rebalancing

15:56 25 March 2021

Global stock markets extended recent declines during today's session. The Nasdaq, which is currently the worst performer and experiences a third day of declines. To a large extent, today's moves can be related to the balancing of the markets before the end of the quarter. Of course, the end of March takes place next Tuesday, however one needs to remember about the T + 2 settlement principle, i.e. theoretically Friday is the last day when changes can still be made.

It is also worth remembering that some of the assets may be sold off by banks that have not yet changed their balance sheets after the Fed decided to close the SLR program. Banks may want to keep their bonds and reserves with the central bank and sacrifice stocks at the same time, obviously not wanting to increase costs through the greater collateral resulting from the leverage calculation.

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The most important thing is, of course, the changes in the balance sheets at the end of the quarter. JP Morgan estimates that funds must / are in the process of selling stocks worth approximately $ 136 billion in order to buy bonds to meet allocation requirements. We are after a strong quarter for the stock market and a weak quarter for the bond market. In order to maintain appropriate proportions, an obvious rebalancing must be made. In turn, Bank of America calculations say that US pension funds will have to sell $ 88 billion in shares in order to buy bonds. BofA indicates that the "peak" of rebalancing falls on the 25th day of the last month of the quarter, ie today.

Another interesting fact may be the lack of enthusiasm on the part of retail investors who have additional funds from the "Biden checks". Therefore, US markets and especially the technology sector suffered the most.

US100 has moved away from its historic peak by almost 10%. As one can see, the mood in the sector is still very weak. Nevertheless, it is worth noting that September and then October were not the best either. At that time, we were dealing with the "second wave" of the coronavirus. Is the current intensification of the third wave a buy signal? Source: xStation5
Meanwhile, DAX (DE30) respects the lower limit of the downward trend channel. Of course, an important resistance is located around 14,600 pts and is strengthened by the upper limit of the downward trend channel and two moving averages that painted a bearish "death cross" signal. On the other hand, the overbalance structure remains intact, which may suggest the end of the downward correction. Source: xStation5

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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