Wall Street Week Ahead: Fund rebalancing could help buoy stock rebound

Money managers rebalancing their portfolios to boost equity exposure into the end of the quarter may support the nascent stock rally that has followed the steep coronavirus-fueled market drop.

"Given the many trillions of dollars in assets that follow some sort of multi-asset class approach, the coming rebalance could well be in the range of a few hundred billion," Jurrien Timmer, director of global macro in Fidelity's global asset allocation division, wrote in a note to clients this week.

U.S. stocks have bounced more than 17per cent from their lows this week following unprecedented stimulus measures from the Federal Reserve and U.S. Senate passage of a US$2 trillion bill aimed at helping unemployed workers and industries hurt by the coronavirus pandemic. Few believe the volatility in markets has ended, as the outbreak's trajectory remains uncertain and the economic fallout potentially massive.

The flows generated by rebalancing appear to have a noticeable impact on asset prices, especially when bond performance trounces that of equities, as has occurred so far in March.

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