(BFM Bourse) – The stock market operator Nasdaq will reduce the weight of its behemoths listed in the Nasdaq 100 during a “special rebalance” or “special rebalancing” operation. Five companies indeed weigh almost as much as the 95 others making up the technology index.
Since the start of the year, American tech stocks have gained significant weight on Wall Street. The Nasdaq 100, the index bringing together the 100 American growth stocks, rose by 38%, while alongside the S&P 500, the managers’ favorite index, pales in comparison with its 14.8% increase in 2023.
Some tech stocks are almost tree-climbing, like Apple, which passed the $3 trillion mark in market capitalization at the end of June. A month earlier, it was the specialist in graphics processors Nvidia which had exceeded 1,000 billion dollars in capitalization on Wall Street.
These two companies alone weigh 12.07% and 7.29% of the index, respectively, according to data from Slickcharts.com. And if we add the respective stock market weights of Microsoft (12.8%), Amazon (6.91%) and Tesla (4.46%), this five major tech weighs for 43.6% of the index, almost as much as the other 95 companies in the Nasdaq 100.
Forced weight loss treatment
In this context, the flagship tech index therefore appears unbalanced. According to the methodology communicated by the exchange operator, the special rebalancing can be carried out at any time if the total weight of the companies with each more than 4.5% in the index exceeds 48%, according to the Nasdaq.
And recent news has confirmed this fact. In a note to clients, Wells Fargo pointed out that the recent bout of Tesla stock fever alone lifted the total weight of this major five above 48%.
“There are fears that this handful of names could skew the health of the broader stock market, which is likely the reason for the special rebalancing,” Art Hogan, chief market strategist at B Riley Wealth, told Reuters.
The stock market operator Nasdaq has therefore used drastic measures and is therefore preparing to undergo a slimming cure in the face of the growing weight taken by these behemoths in the American stock market ecosystem. He implemented a “special rebalance” or “special rebalancing”, in French. This index adjustment is not unprecedented. The stock market operator has already carried out this grooming of the Nasdaq 100, once in 1998 – at the height of the internet bubble – then in 2011.
Starbucks and Mondelez will benefit
Thus, the weight of the leading quintet will be reduced to 38.5% after this rebalancing which will take effect on July 24 before the opening of the American markets. If these tech giants will lose a little stock market weight, others will mechanically gain weight. Starbucks, Mondelez, Booking Holdings, Gilead Sciences, Intiutive Surgical, Analog Devices and Automatic Data Processing are among the lucky winners of this stock market rebalancing, according to forecasts by Wells Fargo analysts relayed by Reuters.
In Paris, the question deserves to be asked but this time with the values of luxury with its listed flagships LVMH, Hermes and Kering. The first city exceeded 500 billion dollars in market capitalization (the total stock market value of a company’s shares) last April, before losing some ground and weighing “more than” 472 billion dollars. Or about 420 billion euros at present. This little slack does not prevent the group led by Bernard Arnault from dominating the CAC 40 and being at the top of the most important companies on the European stock market, and in the top 15 worldwide.
Sabrina Sadgui – ©2023 BFM Bourse