A previous version of this story misstated the number of times the Nasdaq 100 advanced when the Magnificent Seven stocks fell. The story has been corrected.
A Nasdaq rebalancing may be behind Monday’s collective pullback for the Magnificent 7 tech stocks, says blogger Kevin Muir.
MarketWatch photo illustration/iStockphoto
Ho-ho-uh oh? As Tuesday’s CPI data and Wednesday’s Fed meeting hog this week’s limelight, something may be brewing in one hot corner of the stock market.
Monday marked the second time since 2012 that the Nasdaq 100 managed a positive close with all Magnificent Seven names — Apple
AAPL,
-1.29%,
Amazon
AMZN,
-1.04%,
Tesla
TSLA,
-1.68%,
Nvidia
NVDA,
-1.85%,
Microsoft
MSFT,
-0.78%,
Meta
META,
-2.24%
and Alphabet
GOOGL,
-1.26%
— closing in the red. It could be nothing. But our call of the day from The Macro Tourist’s Kevin Muir has an explanation as he warns selling of those heavyweights may just be getting started. As Muir explains, the Nasdaq over the weekend announced final changes for its Nasdaq 100 rebalance or “Reconstitution” that will kick in with Friday’s option expiration. The committee had recently flagged the Magnificent 7 group’s heavy concentration and its methods of dealing with that, says Muir. Rebalancing by index committees is done quarterly to limit the influence of the biggest companies, but the Nasdaq did a “special rebalancing” this summer. Those company weights are capped at 20% of the index if they exceed 24%, with the combined weight of those exceeding 4.5% capped at 40% if it exceeds 48%. Here’s the Nasdaq’s committee’s recent chart:
Muir flagged Barclays, which noted a “considerable surprise” from the rebalance, saying those big stocks saw “aggregate downweights translating to roughly -$13bn in supply, in contrast with the anticipation according to index methodology that those names would see meaningful ($17 billion previously projected to buy) upweights.” Muir says Barclays laid out “monster” stock selling needed for rebalancing: Apple, $4.7 billion; Microsoft, $4.1 billion; Amazon, $2.26 billion; Alphabet A shares
GOOGL,
-1.26%
$1.22 billion; Alphabet C shares
GOOG,
-1.42%
$1.29 billion; Nvidia $1.76 billion and Meta $135 million. Tesla needs buying of $2.9 billion, but the bank notes $5.67 billion in buying was expected. JPMorgan quants also noted the rebalancing, with figures that more or less matched the above. Money raised by selling those stocks must now go into buying the remaining 93 Nasdaq 100 names, Muir says. So investment funds tracking those index changes would be forced to adjust their portfolios — hence Monday’s action. “The selling of MAG7 to buy the rest of the Nasdaq-100 created one of the worst days of relative performance over the past couple of years,” said Muir. Muir commended the Nasdaq committee for trimming the big names, and suggests selling could keep happening as other committees may follow suit in the new year. “My guess is that this won’t be the end of the MAG7 selling and that we will look back at this point as the start of their return to being much more normal performing stocks,” said Muir.The markets
Stock futures
ES00,
+0.03%
YM00,
+0.19%
NQ00,
+0.15%
shot up post CPI, but have pulled back some with Treasury yields
BX:TMUBMUSD10Y
BX:TMUBMUSD02Y
also stepping back. The dollar
DXY
losses are holding, with the yen
USDJPY,
-0.40%
grabbing back some of Monday’s lost ground. Gold
GC00,
+0.38%
is now just above $2,001/oz.The buzz November headline CPI rose 0.1%, above a forecast calling for no change, with core prices — minus food and energy — up 0.3%. Annually, core CPI was steady at 4%, and slowed to 3.1% as expected. (Follow MarketWatch’s live blog) The federal budget is coming later. AstraZeneca
AZN,
+0.40%
will buy clinical-stage biopharmaceutical Icosavax
…
Article Attribution | Read More at Article Source
A Nasdaq rebalancing may be behind Monday’s collective pullback for the Magnificent 7 tech stocks, says blogger Kevin Muir.
MarketWatch photo illustration/iStockphoto
Ho-ho-uh oh? As Tuesday’s CPI data and Wednesday’s Fed meeting hog this week’s limelight, something may be brewing in one hot corner of the stock market.
Monday marked the second time since 2012 that the Nasdaq 100 managed a positive close with all Magnificent Seven names — Apple
AAPL,
-1.29%,
Amazon
AMZN,
-1.04%,
Tesla
TSLA,
-1.68%,
Nvidia
NVDA,
-1.85%,
Microsoft
MSFT,
-0.78%,
Meta
META,
-2.24%
and Alphabet
GOOGL,
-1.26%
— closing in the red. It could be nothing. But our call of the day from The Macro Tourist’s Kevin Muir has an explanation as he warns selling of those heavyweights may just be getting started. As Muir explains, the Nasdaq over the weekend announced final changes for its Nasdaq 100 rebalance or “Reconstitution” that will kick in with Friday’s option expiration. The committee had recently flagged the Magnificent 7 group’s heavy concentration and its methods of dealing with that, says Muir. Rebalancing by index committees is done quarterly to limit the influence of the biggest companies, but the Nasdaq did a “special rebalancing” this summer. Those company weights are capped at 20% of the index if they exceed 24%, with the combined weight of those exceeding 4.5% capped at 40% if it exceeds 48%. Here’s the Nasdaq’s committee’s recent chart:
Muir flagged Barclays, which noted a “considerable surprise” from the rebalance, saying those big stocks saw “aggregate downweights translating to roughly -$13bn in supply, in contrast with the anticipation according to index methodology that those names would see meaningful ($17 billion previously projected to buy) upweights.” Muir says Barclays laid out “monster” stock selling needed for rebalancing: Apple, $4.7 billion; Microsoft, $4.1 billion; Amazon, $2.26 billion; Alphabet A shares
GOOGL,
-1.26%
$1.22 billion; Alphabet C shares
GOOG,
-1.42%
$1.29 billion; Nvidia $1.76 billion and Meta $135 million. Tesla needs buying of $2.9 billion, but the bank notes $5.67 billion in buying was expected. JPMorgan quants also noted the rebalancing, with figures that more or less matched the above. Money raised by selling those stocks must now go into buying the remaining 93 Nasdaq 100 names, Muir says. So investment funds tracking those index changes would be forced to adjust their portfolios — hence Monday’s action. “The selling of MAG7 to buy the rest of the Nasdaq-100 created one of the worst days of relative performance over the past couple of years,” said Muir. Muir commended the Nasdaq committee for trimming the big names, and suggests selling could keep happening as other committees may follow suit in the new year. “My guess is that this won’t be the end of the MAG7 selling and that we will look back at this point as the start of their return to being much more normal performing stocks,” said Muir.The markets
Stock futures
ES00,
+0.03%
YM00,
+0.19%
NQ00,
+0.15%
shot up post CPI, but have pulled back some with Treasury yields
BX:TMUBMUSD10Y
BX:TMUBMUSD02Y
also stepping back. The dollar
DXY
losses are holding, with the yen
USDJPY,
-0.40%
grabbing back some of Monday’s lost ground. Gold
GC00,
+0.38%
is now just above $2,001/oz.The buzz November headline CPI rose 0.1%, above a forecast calling for no change, with core prices — minus food and energy — up 0.3%. Annually, core CPI was steady at 4%, and slowed to 3.1% as expected. (Follow MarketWatch’s live blog) The federal budget is coming later. AstraZeneca
AZN,
+0.40%
will buy clinical-stage biopharmaceutical Icosavax
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