Nasdaq 100 Rebalance: Winners and Losers

The upcoming rebalance of the Nasdaq 100 index is expected to have an impact on mega-cap stocks, but there are also some potential outperformers, says Wells Fargo. Nasdaq has decided to adjust the weightings of its constituents in order to address the issue of “overconcentration” resulting from the significant gains made by big tech names this year.

According to Wells Fargo analysts, the rebalance will create selling pressure on the “uber cap” names. Drawing on the 2011 rebalance, they noted that the stocks with decreased weightings performed less well, lagging behind by 2% to 3% between the announcement and the event itself, as compared to the top performing stocks.

The stocks that will experience the most significant downsizing this time around include Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Amazon (AMZN), Tesla (TSLA), Meta Platforms (META), and Alphabet (GOOGL), according to the bank’s index strategists. On the other hand, the top performers are expected to be Starbucks (SBUX), Mondelez International (MDLZ), Booking (BKNG), Gilead Sciences (GILD), Intuitive Surgical (ISRG), Analog Devices (ADI), and Automatic Data Processing (ADP).

It’s worth noting that the weight changes this time are relatively smaller compared to those in 2011. For example, Apple’s weighting was reduced from over 20% of the index to around 12% in 2011, making it the largest down-sizer. In this rebalance, both Apple and Microsoft, as the top two down-sizers, will see their weightings cut by less than 2 percentage points.

Wells Fargo analysts believe that while this rebalance will have an impact, it is unlikely to break the longer-term trend of mega-cap stocks. They suggest that a more aggressive Federal Reserve pushing the US into a recession, similar to what happened in 2000, would be the key factor in undoing the uber-cap and “new economy” trades.

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