Top Wall Street companies are witnessing a blend of movements in their share prices on Friday as the Nasdaq 100 index prepares for a significant rebalance aimed at addressing concerns of “overconcentration” within the benchmark.
Nvidia and Tesla experienced slight declines of 1.4% and 0.4%, respectively, while Alphabet saw a near 1% increase, and Apple and Amazon maintained relatively stable positions.
The Nasdaq exchange operator, Nasdaq, is set to trim the weight of select companies that currently constitute nearly half of the Nasdaq 100 index. Comprising 100 of the largest companies traded on the Nasdaq, the index follows a “modified market capitalization-weighted” approach, where company weights are determined by their stock market value. However, certain rules are in place to mitigate the influence of the largest stocks within the index.
As Nasdaq undertakes these changes, investment funds that track the Nasdaq 100 will need to adjust their portfolios and sell shares of companies facing reductions in index weight. Analysts from Goldman Sachs predict that the decline in weights could lead to passive net selling of shares, with companies like Alphabet (GOOGL) witnessing more than a day’s average trading volume in net selling, and Microsoft (MSFT), Amazon (AMZN), and Nvidia (NVDA) seeing more than one-third of a day’s trading volume in net selling.
On the other hand, Broadcom, expected to experience an increase in weight after the rebalance, witnessed a rise of 1.6%. The chipmaker currently constitutes 2.4% of the index, according to Refinitiv data, and its weight is set to grow further.
Throughout the stock market’s recovery this year, major companies such as Microsoft, Apple, Nvidia, Amazon, and Tesla have emerged as significant beneficiaries, collectively gaining influence within the Nasdaq 100. Consequently, the index surged by 42% in 2023, compared to a 25% increase in the Nasdaq 100 Equal Weighted Index.
The Nasdaq 100’s upcoming rebalance was announced by Nasdaq on July 7, and there’s a possibility of a special rebalance if the combined weight of companies individually accounting for more than 4.5% of the index exceeds 48%.
With minimal fluctuations in the Nasdaq 100 on Friday, market participants eagerly await the impending rebalance, which is expected to reshape the composition and dynamics of the index, creating potential opportunities and challenges for investors and traders alike.
