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We are going from an inflow tsunami to a selling tsunami in the next weeks

The Market Ear Picture

The set up for late March: a lot of selling. We are going from the "best inflow" picture in like forever to what seems to be some heavy equity selling in the second half of March.

1. Pension Rebalance: numbers still unclear but rest assure that there will be large $ equities for sale vs. bonds

2. 60-40 rebalance quarterly will also be a massive number. Given the increase in AUM of 60-40 strategies, the rebalancing back to bonds, which now looks like a 61%/39% or 62%/38% could be big.

3. Systematic de-leveraging. Systematic supply aka de-leveraging is in process given the breakdown from key technical levels. It’s also important to note, that systematic strategies are not buying from here. GS has -21B for sale over the next 1-month. More important, “up big” we have -$8B for sale, but “down big” we have -$180B for sale.

 4. Momentum. 12m momentum changes at the end of the quarter is bad for the S&P 500 Index composition. (this is selling large cap and largest weights vs. buying the smallest index weights). There is heavy length in long momentum strategies.

5. Issue with issuance. Issuance remains strong, perhaps too strong. YTD US equity and equity-linked issuance (traditional IPOs, SPACs, follow-ons) is off to the hottest start on record ($139bn raised). Previous YTD record was in 2000 ($70bn raised by this point in the year).

6. Taxes. April 15th tax payments. -$1.64T worth of realized capital gains in 2020.

All this is happening into a poor liquidity tape (S&P500 futures liquidity at 6 month low) which will be further exasperated by Easter Holiday vacation (April 2nd is Good Friday. Quarter-end is on Wednesday). Remember that on February Month-end, ES1 sold off -60 handles in the last 10 minutes when it was posted -$2.5B for sale. This one has the potential to get much bigger.

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