NASDAQ 100 Special Rebalancing to Address Magnificent Seven Weighting Rule Trigger

The NASDAQ will announce rebalancing changes on July 14 for the Nasdaq 100 index, and they will take effect before the market opens on July 24. The rebalance is to address the outside dominance and risk to the index from just seven stocks dominating price. The seven stocks that have become known as the “Magnificent Seven” have dominated the NASDAQ 100 and the S&P 500 for that matter in 2023. The price moves higher in Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), Meta (META), Tesla (TSLA) and Nvidia (NVDA) have triggered rebalancing rules.

The seven stocks have appreciated to such a degree they have pulled up the market capitalization-weighted average return of any U.S. or global index they are in.

The NASDAQ rules state that action will be taken if the aggregate total of all stocks with individual weights above 4.5% in the index exceed 48%. The “Magnificent Seven” stocks account for 55% of the total weighting of the Nasdaq 100 at this time.

The Magnificent Seven So far in 2023:

  • Nvidia (NVDA) +195%.
  • Tesla (TSLA) +149%
  • Meta (META) +136%
  • Apple (AAPL) +51%
  • Amazon (AMZN) +48%,
  • Microsoft (MSFT) +39%
  • Alphabet (GOOGL) +31%

The rebalancing differs from an index reconstitution, where stocks are removed or added, a rebalancing changes the weights of an index and their stock component percentages.

Three of these stocks were in the top four stocks in the S&P 500 for the first half of 2023.

  • Nvidia Ticker: NVDA Year-to-date gain: 179.3%
  • Meta Platforms Ticker: META Year-to-date gain: 134.0%
  • Tesla Ticker: TSLA Year-to-date gain: 109.0%

Source: TC, KnovaWave, NASDAQ

From the TradersCommunity Research Desk