Jul 12, 2023 - Economy

Nasdaq 100 Index to rebalance after Magnificent Seven grow to disproportionate share

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Nasdaq is rebalancing its widely traded Nasdaq 100 Index to offset the growing heft of the giant tech companies known as the Magnificent Seven.

Why it matters: It's another indication of the top-heavy quality of the markets at the moment.

The latest: Nasdaq announced it would conduct a "special rebalance" of its Nasdaq 100 index prior to trading on July 24.

  • That will reduce the degree to which the Nasdaq 100's performance is determined by this elite club of seven tech giants: Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta.

What they're saying: "As described in the published index methodology, a Special Rebalance may be conducted to address overconcentration in the index by redistributing the weights. The Special Rebalance will not result in the removal or addition of any securities," Nasdaq said.

  • The methodology spells out that when any group of big stocks — all those making up more than 4.5% of the index — amounts to more than 48% of the index, then the index will be rebalanced.

Be smart: While the Nasdaq composite — a group of more than 3,000 stocks listed on the Nasdaq exchange — is often cited in the press, the Nasdaq 100 is the basis for incredibly popular trading products, such as the Invesco QQQ ETF.

  • Invesco says — citing Bloomberg — that the QQQ is the second-most heavily traded ETF in the U.S., after the SPY index, which tracks the S&P 500.

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