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End of the Year Rebalances: Sell Stocks, Buy Bonds
Danny Riley
December 28, 2023
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Unlike most trading days over the last 8+ weeks, there was definitely two-way price action on Wednesday. That can be attributed to the end-of-the-year rebalance.
In the last two sessions, the NYSE imbalances have sold $5 billion, while the bonds traded up to 125.30, up more than 18 points (or 17.5%) from its October 23rd low. Had the ES not rallied 12 points after the cash close, both markets would have closed in the direction of the end of the year rebalance: buy bonds/sell stocks.
I found this note from Goldman Sachs newsworthy:
The case for taking more investment risk in 2024
Against a friendlier macro backdrop, the case for adding more risk to investment portfolios may be rising. “The business cycle in general is supportive,” says Goldman Sachs Research's Christian Mueller-Glissmann on Goldman Sachs Exchanges. “We want to be invested going into next year. We're neutral equities, neutral bonds, and we've downgraded cash from an overweight. And so to some extent, we're going back to a 60/40 portfolio.”
And while stocks have moved higher in recent weeks, investors should use any market setbacks to buy more equities. “One of the reasons why we said it's time to be invested next year is also that we expect lower risks from multi-asset portfolios, because you actually have more diversification,” Mueller-Glissmann says.
From an asset allocation perspective, Goldman Sachs Asset Management's Alexandra Wilson-Elizondo is recommending that investors stay invested in stocks and be long on government bonds, but be cautious on corporate bonds. “Inflation coming down and moderate levels of growth are good for equity markets,” says Wilson-Elizondo. “And typically, going into a Fed cutting cycle, large-cap equities do quite well.”