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:
Gains of up to 2,390% from our Free Newsletter.
Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!
+2,390% on Nvidia
+450% on Bitcoin
*as of Jun 25, 2024
Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.
If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 3,900% on Nvidia, 850% on Chainlink, and 695% on Bitcoin. The I/O Fund is audited annually to prove it’s one of the best-performing Funds on the market, with returns that beat Wall Street funds.
More To Explore
Newsletter
Mag 7 Stocks Should See One More High
Optimism around the Fed could spark a continuation of the relief rally in the Russell 2000 and further rotation out of the Mag 7. Below, we look at the pros and cons of a Mag 7 rotation and how we pla
Palantir’s Stock Is Priced For Perfection
Heading into 2024, Palantir was exhibiting “multiple signs of acceleration” stemming from strong growth in its US commercial segment, driven by AIP, Palantir’s Artificial Intelligence Platform that le
Tesla’s Q2 Deliveries Strong, But What’s To Come?
After months of being the lowest performing Mag 7 stocks, Tesla saw rapid gains — up 42% in a one month rally, with 37% of those gains in eight sessions — after it reported Q2 deliveries ahead of expe
How to Participate in Tech: The Million Dollar Question (Video Highlights)
With audited returns of 131% since inception, compared to the NASDAQ-100’s 82%, portfolio manager, Knox Ridley, lays out how we have successfully maintained an overexposure to the right tech stocks, w
This AI Stock Could Outpace Nvidia’s Returns by 2030
Lead Tech Analyst and CEO Beth Kindig recently joined Real Vision’s Nico Brugge to discuss her AI outlook on leading AI stock Nvidia, while sharing which AI stock she believes may outpace Nvidia’s ret
AI PC Stocks: Emerging 2024 And 2025 Story
Currently, there is a major bottleneck right now for AI applications to where client devices are not powerful enough or energy efficient enough to leverage AI capabilities at the edge.
AI Power Consumption: Rapidly Becoming Mission-Critical
Big Tech is spending tens of billions quarterly on AI accelerators, which has led to an exponential increase in power consumption. Over the past few months, multiple forecasts and data points reveal s
With Bitcoin at All-Time Highs, Here’s What’s Next for COIN, HOOD
Bitcoin and the spot BTC ETFs have clearly seen strong investor appetite since the approval in the beginning of the year. Alongside strong initial adoption of the new ETF class, we’re also seeing majo
Here's Why Nvidia Stock Will Reach $10 Trillion Market Cap By 2030
I believe Nvidia can achieve an astonishing $10 trillion market cap by 2030. As you’ll see from the key points to my thesis, there is a bull case where a $10T market cap estimate in a little over six
Taiwan Semiconductor Stock: April Sales Soar From Advanced Nodes
Despite warning of a slowdown in the broader semiconductor industry this year, TSMC’s April sales surged 60% YoY and 21% MoM. This marks a positive start to the 20-percentage point acceleration to 33%