To The Moon

Market ahead 

The stock market is about to close out its worst first half in decades in the week ahead, setting the stage for a summer of uncertainty and volatility.

But in the very near term, strategists see a window of positive momentum for an oversold market and say the end of the quarter could be a time for some quick gains. That period, leading up to the final trading day of the month, is when many portfolio managers shift their investments, or rebalance, to make up for the changes in the values of their stock and bond holdings.

JPMorgan’s Marko Kolanovic, for one, sees a case in which stocks could surge 7% in the week ahead, based on rebalancing alone. With the S&P 500 down more than 13.7% for the second quarter and 17.9% for the year so far, investment managers will have to boost stock holdings to regain asset allocation levels.

“Next week’s rebalance is important since equity markets were down significantly over the past month, quarter and six-month time period,” wrote Kolanovic, the firm’s chief global markets strategist. He emphasized that rebalancing activity is not usually the only driver of markets.