NASDAQ REBALANCE: WHAT YOU NEED TO KNOW
August 01, 2023
Beth Kindig
Lead Tech Analyst
This article was originally published on Forbes on Jul 28, 2023,12:07am EDT
On June 30th, the NASDAQ posted the strongest first six months in the index’s history, dating back to 1971. The 6-month returns of 30.5% in 2023 easily beats the prior record of 25.2% in 2019. The majority of the rally was driven by seven stocks: Apple, Microsoft, Nvidia, Amazon, Tesla, Meta, Google. These 7 stocks are up a collective 98% YTD, while the equal weight S&P 500, which provides an equal weighting to all 500 stocks in the index, is up only 9%.
Source: I/O Fund
Sign up for I/O Fund's free newsletter with gains of up to 221% - Click here
This level of narrow leadership continues to pose a problem for active managers who are more diversified than the NASDAQ-100. In fact, by Q1 of 2023, only 1/3 of active managers were ahead of their benchmark in 2023.
As a result, the NASDAQ is being forced by the SEC to rebalance their tech-heavy index, the NASDAQ-100, which will shift the focus away from the top seven stocks in the market, and redistribute weightings to less popular names in the index, like Starbucks and Broadcom, to name a few.
The reason for the rebalance is due to the Magnificent Seven taking up 55% of the Index’s weighting prior to the rebalance. Here was the NASDAQ-100’s weighting prior to the rebalance (as of July 18)
MSFT – 12.7%
AAPL – 12.1%
NVDA – 7.4
GOOGL – 7.3%
AMZN – 6.8%
TSLA – 4.5%
META – 4.4%
On July 14th, the new weighting was announced: NVDA and MSFT would receive the biggest cuts of about 3% each, while AAPL only got shaved by 1% (making it the new top position). Google was cut by 2%, while META and TSLA by 1%. The new rebalance dropped the overall weighting from 55% to ~38%. The NASDAQ-100 topped about 4 days later, and has since been in a minor correction.
Being a static index, a rebalance is a rare occurrence, as it has only happened twice since 1998. The last time was in April of 2011 and was focused on Apple’s outsized weighting in the index. At the time it accounted for just over 20%, and was rebalanced back to 12%. Below shows when this was announced and how it affected the stock. Though the macro environment was much different in 2011, it’s worth noting that Apple had an immediate dip that was quickly bought.
Every Thursday at 4:30 pm Eastern, the I/O Fund team holds a webinar for premium members to discuss how to navigate the broad market, as well as various stock entries and exits. We offer trade alerts plus an automated hedging signal. The I/O Fund team is one of the only audited portfolios available to individual investors. Learn more here.
Source: I/O Fund
We believe this is worth monitoring as $209 Billion is currently in QQQ, an ETF that tracks the NASDAQ-100. This means that MSFT, for example, lost $18.8 Billion in demand from this single ETF having to rebalance in accordance with the new changes. Furthermore, many institutional funds are benchmarked to this index, and are in the process of rebalancing their portfolios to coincide with these changes, which should further affect demand.
Our current take on the market is that if SPX break below 4515, then the market has likely topped. Below 4275 and SPX has put in a big top and this would be bearish. On the other hand, if 4275 is defended, then our firm will layer into more stocks as this would be bullish. The level of 4275 is of critical importance and we will update our Premium Members with our buy plan if we get here.
Source: I/O Fund
I/O Fund Portfolio Manager, Knox Ridley, contributed to this article .
Recommended Reading:
Get a bonus for subscription!
Subscribe to our free weekly stock
analysis and receive the "AI Stock: 5
Things Nobody is Telling you" brochure
for free.
More To Explore
Newsletter
Tesla Stock Faces Recalibration of Growth Expectations
Tesla’s stock is now facing a recalibration of expectations after Q1’s delivery report missed by a wide margin. Q1’s analyst consensus has gone from $25.98B at the start of the year to $23.97B in earl
The Fed Can’t Save This One: Why Bonds May Break the Stock Market in 2025
In early 2025, as markets rallied to new highs, we warned that divergence across key sectors signaled a looming correction. Now, with all major indexes in a technical bear market and bond market dysfu
Oracle Stock Outlook: Revenue Could Double by FY2029, yet Targets Seem Lofty
Late in 2024, Oracle outlined an ambitious plan to nearly double its revenue by fiscal 2029, hinging on long-term growth in enterprise AI and cloud spending. Oracle sets itself apart from its hypersca
I/O Fund Reports 210% Cumulative Return -- Ranking Above Wall Street's Best
In 2024, I/O Fund posted a 35% return, significantly outperforming popular tech ETFs, which recorded an 8% return over the same period. On a cumulative basis, the results translate to a remarkable 219
The Harsh Truth: Retail Investors Take the Brunt of Market Losses
Retail investors face significant disadvantages in the stock market, often underperforming institutional investors by a wide margin. Studies show that high-frequency trading firms dominate market acti
NVIDIA’s GB200s for up to 27 Trillion Parameter Models: Scaling Next-Gen AI Superclusters
Supercomputers and advanced AI data centers are driving the AI revolution, enabling breakthroughs in deep learning and large-scale model training. As AI workloads become increasingly complex, next-gen
NVIDIA Blackwell Ultra Fuels AI & HPC Innovation, Efficiency and Capability
NVIDIA’s latest Blackwell Ultra GPU, unveiled at NVIDIA GTC 2025, is transforming AI acceleration and high-performance computing (HPC). Designed for the “Age of Reasoning,” these cutting-edge GPUs del
Nvidia CEO Predicts AI Spending Will Increase 300%+ in 3 Years
Nvidia has traversed choppy waters so far in 2025 as concerns have mounted about how the company plans to sustain its historic levels of demand. At GTC, Huang threw cold water on many of the Street’s
Why Gas Pipelines Are the Unsung Heroes of AI Data Center Expansion
Natural gas is emerging as the backbone of AI data center expansion, with demand expected to reach up to 6 billion cubic feet per day by 2030. As AI-driven infrastructure surges, data centers are turn
AI Data Center Power Wars: Brown vs. Clean vs. Renewable Energy Sources
AI data centers are at the heart of the AI revolution, but their massive energy demands raise critical questions. With power consumption expected to grow 160% by 2030, data centers are turning to a mi