One thing I forgot to mention in this morning’s update (as mentioned in Wednesday’s morning note) is that there’s likely a serious rotation occurring within funds whose mandates keep them at a targeted stock/bond mix. In that stocks over the past month have underperformed bonds notably, there’s some month-end rebalancing (overweight bond selling, underweight stock buying) that is likely helping this rally along — but only for the moment… 

Here’s how I put it Wednesday:

“Oh, and by the way, this divergence has potential implications for all of those auto rebalancing funds that rest on, for example, all of those 401(k) investment menus. In that they’re set to automatically rebalance to a preset stock/bond allocation at, say, monthly or quarterly intervals, there’s potentially rising buying pressure on stocks in the offing, as these funds are likely overweight bonds/underweight stocks, relative to their targets. Which supports our notion that perhaps a counter-trend bounce is in the offing… Unless of course it’s overwhelmed by heavy selling pressure from other players…”

We’ll know soon enough if that selling pressure is going to arrive on the scene… 

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