The Nasdaq 100 index is preparing to adjust the weight of its 100 components. Seven of the stocks, including Microsoft, Apple, Nvidia, Tesla, Google parent Alphabet, Meta Platforms, and Amazon, currently hold over half of the index’s weight. Unfortunately, these magnificent seven stocks experienced a decline on Monday, following this information.
To address the over-concentration in the index, a special rebalance will take place before the market opens on Monday, July 24th. The weighting changes will be announced on Friday, July 14th, but no stocks will be added or removed.
To be clear, the Nasdaq 100 is made up of the 100 largest Nasdaq components that are not financial. Although there are safeguards against overconcentration, the index is weighted according to market capitalization.
Nasdaq 100 Weights Of Magnificent Seven
|Market cap, in trillions (as of July 11)
The Nasdaq 100 index is dominated by the seven largest companies, which account for 55% of the index. However, it is expected that this combined weighting will be reduced soon, and there may be notable shifts within these seven giants.
While market capitalization is the primary factor for determining the weights, it is not the only one. As of July 7, Microsoft stock has the largest weight at 12.9%, followed closely by Apple with a weight of 12.5%, despite having a market cap of $2.999 trillion, compared to Microsoft’s $2.51 trillion.
Google stock has a 7.4% weighting, taking into account the combined share classes of GOOGL and GOOG. Meanwhile, Nvidia stock has a weight of 7% in the Nasdaq 100, thanks to its $1.05 trillion market cap. Surprisingly, this is slightly higher than Amazon stock, which has a market cap of $1.33 trillion, yet a weight of 6.9%.
Tesla stock and Meta Platforms complete the top-seven members, with weights of 4.5% and 4.3%, respectively. For the entire Nasdaq composite, Apple stock has an 11.4% weighting, while Microsoft is at 9.5%. Google stock is at 5.8%, while Amazon and Nvidia are at 5.1% and 4%, respectively. Tesla stock has a 3.3% share, and Meta stock is at 2.8%.
It is expected that there will be some reduction in the weightings of the top five companies (Apple, Microsoft, Google, Amazon, and Nvidia) in the Nasdaq 100 index, as per the methodology.
Their combined weight will be set to 38.5%, which is less than their current combined weight of 46.7%. This also indicates that there may be a slight decrease in the weight of TSLA stock. The official reweightings are expected to be released on Friday, and it may also include an increase in the weightings of other stocks.
The year 2023 has been a great one for the Invesco – QQQ ETF, as it has seen an increase of 37.5% in value through July 7th, tracking the big-cap Nasdaq index. However, the First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW), which gives equal weight to all 100 stocks, has only seen an increase of 18.8%.
This performance gap is mostly caused by the enormous moves made by mega-caps this year. The value of Nvidia stock has nearly quadrupled (191%), META stock has increased 141%, and Tesla stock has increased 123%. In addition, Apple stock has increased by 47%, Microsoft stock has increased by roughly 41%, and Amazon stock has increased by a notable 54.5%. The price of Google stock has also increased by a respectable 35%.
However, there is some concern that this handful of names is distorting the health of the overall stock market, which is likely why a special rebalancing is being planned.
The Nasdaq 100 special rebalancing could cause stock allocation shifts among ETFs such as the QQQ and mutual funds that track the index. Therefore, there could be some one-off gains or losses, possibly as a result of the planned changes that will be announced on July 14th.
Nasdaq 100 Short (Sell)
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