NASDAQ To Be “Rebalanced”

The dominance of tech giants on the stock market is causing an imbalance, according to experts. Companies, including Microsoft, Apple, and Amazon, caused the Nasdaq 100 index to rise 37.5% this year. They account for 43.8% of the index and a “rebalance” is needed to reduce this to a target of 38.5%.

Art Hogan, chief market strategist for B Riley Wealth, said, “There is some concern that this handful of names is distorting the health of the overall stock market, which is likely what’s spurring the special rebalancing.”

Refinitiv data reports that Microsoft carries the biggest weight at 12.91%, followed by Apple with 12.47%, Nvidia at 7.04%, Amazon at 6.89%, and Tesla at 4.50%. A “special rebalancing” aims to restore compliance with the US Securities and Exchange Commission rule on fund diversification.

As a result of the rebalance, some stocks will see their weight increase, while the tech giants will reduce. Companies set to increase include Starbucks, Mondelez, Gilead Sciences, and Analog Devices. Index changes will force investment funds to sell shares in companies that reduce in weight.

The special rebalance will occur in late July “to address overconcentration in the index by redistributing the weights,” Nasdaq said in a press release. The last time such a rebalance occurred was in 2011, when a European debt crisis damaged US stock prices. A similar rebalance occurred in 1998 when investors bought stock in internet-based companies that failed to reach expected profits.

Nasdaq is the world’s first fully electronic trading system, featuring most of the world’s technology giants. It opened in 1971 and has more than 5,000 companies listed. It facilitates the trade of stocks, derivatives, and commodities, and its trading technology is used by 100 exchanges spread throughout 50 countries. Based in New York City, it is one of America’s leading stock exchanges and is the most active stock trading venue by volume. It comes in just behind the New York Stock Exchange in terms of market shares traded.