An unusual cash flow to the markets is planned towards the end of the month. What should you expect following one of the decade's biggest events?
An important and interesting data point is coming to us from Goldman Sachs. Note:
According to data from Goldman Sachs' research desk, US pension funds are preparing for a massive stock purchase of approximately $13.8 billion at the end of the month.
This is a particularly significant figure, and it is higher than 97% of all monthly purchases recorded in the last 3 years.
To understand the magnitude of the move:
It should be noted that since 2000, pension funds have tended to sell stocks, averaging $1.8 billion per month.
The current purchase is one of the highest in history, surpassing 93% of months since the start of the millennium!
But it is still far from the all-time high recorded during the COVID-19 pandemic in 2020, which stood at $80.6 billion.
The main reason for this movement is the funds' need to perform "rebalancing".
This is a situation where institutional investors act to maintain a fixed ratio between their investment channels in different tracks, for example, 20% bonds, 80% stocks.
Due to recent declines in the stock market, their weight in the pension portfolio has decreased compared to low-risk assets, and therefore, the funds are required to buy stocks and sell bonds to return to their original allocation targets.
The direct implication:
An equivalent amount of bonds will be sold to finance these stock purchases.
This sets the stage for a very large cash flow back into the stock market to stabilize institutional portfolios.
What is very important to understand is:
These rebalancings are done towards the last day of the month, and usually also towards the second half of the trading day with increased activity towards the close.
The impact of such purchases on the markets can be very strong...
A good example of this can be seen from the end of February 2025. (We have specifically included a chart of the S&P500 index from that day)
As of that day, trading was very negative...
But suddenly, a remarkable reversal and a rise of almost 2% from the bottom occurred, without any headlines.
What is interesting is that the negative trend continued in the following days, which shows that this was a technical cash flow.
This reversal is attributed to a flow of over $13 billion from pension funds on that day, exactly what is planned to happen at the end of the current month.
We noticed that the amounts are quite similar, and the big question is: will the level of liquidity be similar?
It will be interesting.