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The bruised U.S. stock market may attract $800 billion in new investments as funds that promise to maintain specified levels of stocks and bonds in investor portfolios make adjustments after coronavirus-driven swings in both classes.
The virus, first reported in Wuhan, China, causes a disease dubbed COVID-19 that has been declared a global pandemic, grinding global economies to a virtual standstill as health officials attempt to halt its spread, which occurs primarily through saliva and mucus from sneezes.
More than 330,000 people have been infected, according to the World Health Organization, and more than 14,000 have died. In New York, Gov. Andrew Cuomo has asked residents to stay home as much as possible, and in California, Gov. Gavin Newsom has imposed a "shelter-in-place" order.
Retailers such as Sephora and Tiffany have closed stores, banks have shuttered some of their branches and grocers have curtailed their hours, driving a sharp slide in U.S. stocks. Before a rally on Tuesday, the blue-chip Dow Jones Industrial Average had wiped out all its gains under Donald Trump's presidency.
"The stark underperformance of equities, which have declined 13 percent month-to-date, and the outperformance of bonds, which have increased 10 percent," leave so-called fixed-weight portfolios some 4 percent below minimums, Mark Kolanovic, chief quantitative and derivative strategist at JPMorgan Chase, said in a report to clients this week.
"This suggests there could be a large rotation out of bonds and into equities to rebalance back to target weights" as the end of the first quarter nears, the researchers wrote. Over time, "this bond dislocation could generate $500 billion to $800 billion of inflows into equities."
Gauges of market volatility have reached some of their highest levels since the Black Monday crash of 1987, and investor Mohamed El-Erian said there's more to come.
"We know there's dry powder on the sidelines, El-Erian, chief economic adviser at Allianz Global Investors, told FOX Business' Maria Bartiromo on Tuesday. "But we also know there's more forced selling to come."