Wall Street: Records and Rebalancing

Estimated reading time: 3 minutes

Is a Rotation Coming?

There’s less than a week left in the first quarter of the year, and what a quarter it has been. Let’s take stock of how far we’ve come and what might lie ahead.

Investor expectations for rate cuts in 2024 moved down from as high as seven to as low as three today, we had an upside surprise bonanza of an earnings season, and the Bank of Japan ended its decade-long experiment with negative interest rates, just to name a few things. Oh and stocks did well… really well.

S&P 500 total returns are over 10% so far this year. Considering that the index has historically returned that much annually, saying that stocks are doing well might be an understatement. Additionally, the move higher for stocks has been a steady one, without much in the way of drawdowns to speak of. That’s led to the S&P 500 setting new all-time highs more than 20 times this year. 

However, it’s important to keep in mind that quarter-end periods can sometimes bring volatility and reversals as investors rebalance their portfolios, especially when there are differences in stock and bond returns. Stocks are up big while bonds have actually had negative returns this quarter, with the performance spread between the two asset classes the widest since the second quarter of 2020. Generally, rebalancing means bringing your portfolio back to its strategic asset allocation. For example, if your target allocation was a 60/40 mix and stocks were now 70% of your portfolio due to a strong rally, a rebalance would mean selling some stocks to buy bonds.

The wider the performance gap between parts of a portfolio, the more potential there is for rebalancing. And if enough investors rebalance, the rotation from stocks into bonds could cause a reversal in price trends, if only temporarily. Considering that this week’s calendar is devoid of any big data fireworks like we’ve had over the last few weeks, portfolio rebalancing might take center stage.

Disclaimer
SoFi Securities (Hong Kong) Limited and its affiliates (SoFi HK) may post or share information and materials from time to time. They should not be regarded as an offer, solicitation, invitation, investment advice, recommendation to buy, sell or otherwise deal with any investment instrument or product in any jurisdictions. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
SoFi HK does not make any warranties about the completeness, reliability and accuracy of this information and will not be liable for any losses and/or damages in connection with the use of this information.
The information and materials may contain hyperlinks to other websites, we are not responsible for the content of any linked sites. The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi HK. These links are provided for informational purposes and should not be viewed as an endorsement. The risk involved in using such hyperlinks shall be borne by the visitor and subject to any Terms of Use applicable to such access and use.
Any product, logos, brands, and other trademarks or images featured are the property of their respective trademark holders. These trademark holders are not affiliated with SoFi HK or its Affiliates. These trademark holders do not sponsor or endorse SoFi HK or any of its articles.
Without prior written approval of SoFi HK, the information/materials shall not be amended, duplicated, photocopied, transmitted, circulated, distributed or published in any manner, or be used for commercial or public purposes.