RE: Tecx24 Jul 2023 08:30
Nasdaq 100 to rebalance..
Why the Nasdaq 100's rebalancing matters for investors
On July 24, the Nasdaq 100 (NDX) will undergo a “special rebalance,” which is meant to curb the high concentration in the index of a handful of tech stocks. The weight of the seven largest stocks in the index will be reduced by 12 percentage points (from 56% to 44%).
While mutual funds and exchange traded funds have around $260 billion in assets benchmarked to NDX, the special rebalance in 2011 suggests the stock-level impact will be limited, Goldman Sachs Chief U.S. Equity Strategist David Kostin writes in the team's report. During that event, Nasdaq slashed the NDX weight of Apple stock from 20% to 12%, but this change had no clear negative effect on the stock's performance. Likewise, there was no clear impact on Microsoft despite its index weight rising by nearly 5 percentage points to 8% following the rebalance. In fact, Microsoft lagged Apple during the weeks around the rebalance.
Rather than the special rebalance, Kostin expects earnings growth, valuation, and the macro environment to drive returns for the NDX and its largest stocks during the next six months. Consensus bottom-up 2023 EPS estimates for NDX have fallen by just 1% this year, compared with a 5% decline for S&P 500 EPS. In addition to an improving near-term economic outlook, investor optimism regarding AI and the end of Federal Reserve tightening have lifted the NDX forward P/E multiple by 32% (21x to 28x) leading to a year-to-date return of 42% for the index and 65% for its largest seven stocks. ‘
Staggering performance! Just shows how far London is behind!
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