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NASDAQ Annual Rebalance Introduces New Stocks While Adjusting for Market Concentration

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.


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.


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.


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.


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.


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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