Although the dot plot updated by the Fed on Wednesday implied that there would be two more rate hikes this year, which is more hawkish than expected, the market boldly bet that the rate hike cycle is nearing its end due to Fed Chairman Powell's admission that &#34;slowing the pace of rate hikes as we approach the target rate is reasonable.&#34; Even if there is another rate hike, it will only be a routine, small 25 basis point hike, and violent rate hikes are already exhausted.
On Thursday, June 15th, the day after the FOMC announced that it would not raise interest rates in June, US stocks led risk assets into another &#34;melt-up&#34; state. The three major indices rose by about 1%, with the Dow Jones leading the way with a maximum increase of more than 410 points. The S&amp;P 500 index rose above 4400 points for the first time since April last year, and the NASDAQ Composite Index hit its highest level in over a year since April last year. The Dow Jones also hit a six-month high since December last year.
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This week, technology stocks continued to lead the way, and the NASDAQ Composite Index is about to rise for the eighth consecutive week, at least the longest consecutive rise since November 2019. The S&amp;P 500 index is about to rise for the fifth consecutive week, the longest consecutive rise since November 2021, and the best weekly performance since March 31, 2021. The S&amp;P 500 index maintains the technical bull market it entered last Thursday, with a cumulative increase of 15% this year, and the NASDAQ Composite Index has risen more than 31% this year.
Although some analysts have pointed out that with the participation of cyclical and value stocks, the rotation of US stocks continues, making technology stocks no longer the only ones leading the market, and investors are crazy about &#34;everything else.&#34; This trend is expected to drive US stocks to continue to rise, but there are also Wall Street investment banks beginning to sing the bearish tune of the stock market.
The latest addition to the short-term bearish camp is Nikolaos Panigirtzoglou, global strategist at JPMorgan. He said last week that the &#34;decoupling&#34; of stocks and bonds is becoming more and more serious, and if the bond market correctly prices the risk of inflation fluctuations, US stocks may plummet by 20% and return to a bear market.
The analyst's latest research report warns that as the end of June and the end of the second quarter approach, the pillars of the institutional investment community, such as sovereign wealth funds and pension funds, will face asset portfolio rebalancing. It is expected to sell $150 billion worth of stocks and buy bonds to restore the initial asset allocation target. This will be the largest rebalancing amount flowing into the bond market since the fourth quarter of 2021:
According to Morgan Stanley, &#34;The rebalancing adjustments made by the world's largest fund management companies may cause the stock market to fall by 3% to 5%, casting doubt on whether the stock market can continue to rise in the coming weeks.&#34;
According to calculations by JPMorgan:
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The world's largest pension fund, the Japanese government pension investment fund (GPIF), with assets of $1.5 trillion, may have to sell $37 billion worth of stocks to return to its asset allocation target.
Norway's $1.3 trillion oil fund may move $18 billion from stocks to bonds, while the Swiss National Bank may sell $11 billion worth of stocks.
US fixed-income pension plans, which manage $8.5 trillion in assets, may need to move as much as $185 billion out of stocks and into net bond-like investments to achieve their long-term goals.
</blockquote>
Although there is no specific evidence to prove the behavior of &#34;rebalancing&#34;, it is widely believed in the financial industry that large institutional investors such as hedge funds, pension funds, endowment funds, and insurance companies always buy and sell assets at the end of the month, especially at the end of each quarter, to rebalance the asset allocation in their investment portfolios. Companies, analysts, and governments often release a lot of new information that can be used for operation at the end of each quarter.
&#34;Rebalancing&#34; refers to the regular or irregular reallocation of assets based on risk parity, fixed weight, and other principles to balance the exposure of various assets and take into account market fluctuations during a specific period. Most investment models use monthly or quarterly data and evaluate investment returns and asset structures at the end of the month or quarter.
Once a certain type of asset rises or falls sharply within a certain period of time, causing its proportion to exceed the target range of the asset allocation in the investment portfolio, investors usually sell profitable assets at a high price and buy underperforming assets at a low price to achieve the adjustment of the allocation ratio. For example, if the stock market has performed better than bonds so far this quarter, the portfolio manager needs to reduce the stock exposure to achieve long-term goals.
Nikolaos Panigirtzoglou of JPMorgan once pointed out that &#34;quarter-end rebalancing&#34; usually does not become the main driving force of the market, but when the change in the rebalancing window of the market is large and consistent, they can play a more important role. &#34;The current &#34;divergence between the stock market and the bond market is the largest since the fourth quarter of 2021.&#34;
Even without considering the institutional rebalancing demand, the latest data also shows that the &#34;borrowing and rising&#34; of US stocks may be difficult to continue.
Research firm Dealogic found that since the end of April, major global companies and private equity firms have sold more than $24 billion worth of stocks, with more than $17 billion worth of stocks sold in May alone, far exceeding last year's monthly average of $6.9 billion.
Some analysts believe that as the S&amp;P 500 index enters a new bull market, large investors such as private equity firms have finally found an opportunity to sell company stocks and return funds to pension funds and other funding institutions.
This week, Morgan Stanley's &#34;Big Short&#34; who has always been firm in bearish on US stocks, strategist Mike Wilson also wrote again, explaining why his views are much more pessimistic than those on Wall Street.
Morgan Stanley expects US stock EPS to decline by 16% YoY this year. The bank pointed out that the downturn in the profit cycle of US stocks is not yet priced in by the market. With the continuous decline of inflation rate under the high-interest environment, profit margins and returns will quickly decline.
Since last year, Michael Hartnett, the most accurate analyst on Wall Street's predictions and strategist at Bank of America, has also insisted on being bearish. He believes that the logic of the rise in US stocks cannot stand. Recently, &#34;fear of economic recession in the first quarter&#34; is turning into &#34;greed for the golden-haired girl in the second quarter&#34;:
<blockquote>
Rising interest rates and the upcoming liquidity decline are the main negative risks that long positions in bonds, artificial intelligence, technology stocks, and EU luxury goods will face in the third quarter.
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.IXIC

Sovereign wealth funds and pension funds, the largest institutional investors, have made the largest rebalancing of asset allocation since Q4 2021, which may cause the stock market to fall by 3% to 5%. Last week, he also said that the "decoupling" of stocks and bonds is becoming more and more serious. If the bond market correctly prices the risk of inflation fluctuations, the US stock market may plummet by 20% and return to a bear market.

JPMorgan warns: End-of-quarter rebalancing is coming, and the stock market faces $150 billion in selling pressure.