U.S. pension funds may pour more than $100 billion into stocks in coming months as part of rebalancing programs, at a minimum offsetting current selling waves, according to a report by Goldman Sachs.
Joanne M. Hill, managing director and head of global derivatives and trading research, wrote that pension funds may fuel a sharp rebound as they address equity underweighting of about five to 10 percentage points. Stocks also have become more attractive, and the speed of July's market decline has boosted volatility of the Standard & Poor's 500 index, which suggests a better equity market ahead. If the top 200 U.S. defined benefit funds moved halfway toward their target allocations, it would involve buying stocks and selling bonds in the range of $90 billion to $100 billion. Expected rebalancing flows could be $15 billion higher, factoring in the top 1,000 defined benefit funds, she wrote.
However, rebalancing may occur slowly, delayed by current stock-market drops, the dog days of August, fear of more corporate accounting surprises and a view that the costs of waiting are less than investing too early, she wrote.