The December quarterly rebalance for NASDAQ is set to take place on Friday December 15, 2023. The rebalance will introduce new stocks and the exit of some underperforming stocks.
- New Entrants:
- DoorDash (DASH)
- MongoDB (MDB)
- Splunk (SPLK)
- CDW Corp. (CDW)
- Coca-Cola Europacific Partners (CCEP)
- Roper Technologies (ROP)
- Exiting Stocks:
- Zoom Video Communications (ZM)
- Enphase Energy (ENPH)
- eBay (EBAY)
- JD.com (JD)
- Align Technology (ALGN)
- Lucid Group (LCID)
- Acquisition: Splunk is joining the index but may soon be acquired by Cisco Systems.
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Implications for Index Funds and ETFs
- Tracking Funds: Many index funds, including the Invesco QQQ Trust ETF with assets of $220 billion, track the Nasdaq 100 and will need to adjust holdings accordingly.
- S&P 500 Rebalance: Alongside the Nasdaq 100, the S&P 500 index is also undergoing a rebalance, which will affect funds indexed to it.
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Trading and Market Impact
- Passive Investing Influence: The rebalances are significant due to the substantial amount of money in passive index investing.
- Triple Witching: Corresponding with the rebalance is triple witching, the quarterly expiration of various options and futures, which could lead to increased trading activity.
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Market Concentration Concerns
- Index Concentration: A small number of tech companies represent a large portion of the indexes, prompting rebalances to address concentration risks.
- Diversification Requirements: Federal law and index rules enforce diversification, limiting the weight any single company can hold in an index.
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Sector-Specific Adjustments
- S&P 500 Sector Indexes: Adjustments to the sector indexes will ensure compliance with diversification rules, which may affect the weighting of companies like Apple and Microsoft.
- Weighting Scheme: The Nasdaq-100 uses a modified market-capitalization weighting to prevent overconcentration in large stocks.
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Looking Ahead
- Index Reconstitution: The rebalancing reflects the ongoing effort to manage risk and maintain diversification within leading indexes.
- Stock Performance: Investors will be watching the performance of the new entrants and exits, considering the broader implications for market trends and investment strategies.
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