Could the Nasdaq 100 Re-Balancing Mark the Top for Apple (AAPL)?
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The Nasdaq 100 special re-balancing, which will reduce Apple's (Nasdaq: AAPL) weighting in the index from 20.49 percent to 12.33 percent, will be effective prior to the market open Monday, May 2, 2011, and will be based on Friday's closing price.
With an estimated $300 billion in funds indexed to the Nasdaq 100, the impact on Apple is expected to be minimal and much of the selling may have already taken place. Shares of Apple are actually 3 percent higher since the news.
Though the actual adjustment may not be a huge deal, the underlying story is something much more interesting and symbolic.
The last time Nasdaq had a special re-balancing was in December 1998 because of Microsoft (Nasdaq: MSFT). At that time Microsoft was a "must own stock" and made up more than 25% of the index. Ironically, Microsoft's weight in the index was reduced and added to smaller stocks in the index like Apple.
With the current re-balancing, Apple will have its weighting reduced while Microsoft will see a gain, from 4.91 percent to 8.32 percent. How the tides have turned.
The 1998 re-balancing did little to impact Microsoft stock in the short term; the stock actually traded higher for a short time. However, looking at the split adjusted price of Microsoft at the time of the re-balancing (around $27), you will see the stock is actually down since that time. Microsoft shares are trading around $25.56 today.
Will Apple suffer the similar fate over the next decade?
Also, is it possible that Microsoft could take back the top spot in the Nasdaq 100? How about one of the beaten up companies which will be gaining some of Apple's weighting becoming the future leader? Some that fit this bill include: Yahoo! (Nasdaq: YHOO) (0.86 percent), Cisco (Nasdaq: CSCO) (3.66 percent), Intel (Nasdaq: INTC) (4.2 percent), and Applied Materials (Nasdaq: AMAT) (0.8 percent).
So as you hear about the short-term implication of this change, longer-term investors should be looking beyond. If history repeats itself, which it usually does, Apple won't be sitting on the top the next time a special re-balancing occurs.
With an estimated $300 billion in funds indexed to the Nasdaq 100, the impact on Apple is expected to be minimal and much of the selling may have already taken place. Shares of Apple are actually 3 percent higher since the news.
Though the actual adjustment may not be a huge deal, the underlying story is something much more interesting and symbolic.
The last time Nasdaq had a special re-balancing was in December 1998 because of Microsoft (Nasdaq: MSFT). At that time Microsoft was a "must own stock" and made up more than 25% of the index. Ironically, Microsoft's weight in the index was reduced and added to smaller stocks in the index like Apple.
With the current re-balancing, Apple will have its weighting reduced while Microsoft will see a gain, from 4.91 percent to 8.32 percent. How the tides have turned.
The 1998 re-balancing did little to impact Microsoft stock in the short term; the stock actually traded higher for a short time. However, looking at the split adjusted price of Microsoft at the time of the re-balancing (around $27), you will see the stock is actually down since that time. Microsoft shares are trading around $25.56 today.
Will Apple suffer the similar fate over the next decade?
Also, is it possible that Microsoft could take back the top spot in the Nasdaq 100? How about one of the beaten up companies which will be gaining some of Apple's weighting becoming the future leader? Some that fit this bill include: Yahoo! (Nasdaq: YHOO) (0.86 percent), Cisco (Nasdaq: CSCO) (3.66 percent), Intel (Nasdaq: INTC) (4.2 percent), and Applied Materials (Nasdaq: AMAT) (0.8 percent).
So as you hear about the short-term implication of this change, longer-term investors should be looking beyond. If history repeats itself, which it usually does, Apple won't be sitting on the top the next time a special re-balancing occurs.
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