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What Traders Need To Know About The Historic S&P 500, Nasdaq 100 Rebalancing

Wayne Duggan
·3 min read

Traders will be looking out for some major volatility in the markets in the coming days as part of significant rebalancing in both the S&P 500 and the Nasdaq 100.

What Is Rebalancing? S&P Global and Nasdaq Inc (NASDAQ: NDAQ) adjust the constituents of their popular S&P 500 and Nasdaq 100 indices on a regular basis.

New stocks that meet the market cap and profitability requirements are added to the indices, and companies that drop below the threshold for inclusion are removed. The S&P 500 index is rebalanced on a quarterly basis, while the Nasdaq 100 is rebalanced annually.

This December, the Nasdaq 100 and the S&P 500 will be rebalancing prior to the market open on Monday, Dec. 21.

Related Link: No, The Stock Tesla Is Replacing In The S&P 500 Is Not Down 85%

Stocks On The Move: The Nasdaq 100 is shuffling more companies this time than the S&P 500. The following six stocks will be added to the Nasdaq 100 prior to Monday's open:

  • American Electric Power Company Inc (NASDAQ: AEP)

  • Marvell Technology Group Ltd. (NASDAQ: MRVL)

  • Match Group Inc (NASDAQ: MTCH)

  • Okta Inc (NASDAQ: OKTA)

  • Peloton Interactive Inc (NASDAQ: PTON)

  • Atlassian Corporation PLC (NASDAQ: TEAM)

Those stocks will replace these six, which will be removed from the index:

  • BioMarin Pharmaceutical Inc. (NASDAQ: BMRN)

  • Citrix Systems, Inc. (NASDAQ: CTXS)

  • Expedia Group Inc (NASDAQ: EXPE)

  • Liberty Global PLC (NASDAQ: LBTYA) (NASDAQ: LBTYK)

  • TAKE-TWO INTERACTIVE SOFTWARE, INC (NASDAQ: TTWO)

  • Ulta Beauty Inc (NASDAQ: ULTA)

The S&P 500 is making only one move, but it could prove to have a much larger impact.

Tesla Inc (NASDAQ: TSLA) will join the S&P 500 on Monday, replacing Apartment Investment and Management Co (NYSE: AIV).

What To Expect: Tesla will be by far the largest company ever added to the market cap-weighted S&P 500.

Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) had an initial weighting of around 1.4% when it was added to the index back in 2010, similar to the 1.5% weighting Tesla will have when it joins the index as its sixth-largest component on Monday.

Tesla’s $590-billion market cap today dwarfs Berkshire’s $160-billion market cap at the time of its addition.

Given so many institutional investors and funds track the S&P 500 and the Nasdaq 100, the rebalancing could trigger some extreme buying and selling volume, especially when it pertains to Tesla.

“This is important because if you’re trading these stocks ... to understand that if they are going in or out, there’s going to be some wicked moves in them on Friday,” said Dennis Dick, co-host of Benzinga’s PreMarket Prep.

“Maybe that gets you to a target. Maybe that gets you out of something or into something. Maybe there’s some buying pressure that will get you out of your swing trade.”

Given the volatility associated with the rebalancing, Dick said traders should always pay attention to the stocks going in and out of major indices.

Benzinga’s Take: Traders should watch out for extreme volatility in the specific stocks mentioned and in both the SPDR S&P 500 (NYSE: SPY) and the Invesco QQQ Trust Series 1 (NASDAQ: QQQ) on Friday and Monday.

Make no mistake about it, Tesla will be the headline given its 768% surge in the last year and the fact that it will be forcing roughly $83.1 billion of buying volume from indexers such as Fidelity and Vanguard.

Latest Ratings for TSLA

Date

Firm

Action

From

To

Dec 2020

Jefferies

Downgrades

Buy

Hold

Dec 2020

New Street

Downgrades

Buy

Neutral

Dec 2020

JP Morgan

Maintains

Underweight

View More Analyst Ratings for TSLA
View the Latest Analyst Ratings

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