—and tech stocks in general—are about to become less important to the
Next week, S&P Dow Jones Indices will readjust the representation of the 500 companies that constitute the market benchmark, a quarterly process known as a rebalancing. Exchange-traded funds and mutual funds that track the S&P 500 will have to readjust their holdings as a result—a process that results in billions of dollars of buying and selling.
The rebalancing will take effect when the market opens on June 24—based on market levels as of this coming Friday. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, shared preliminary data Monday on how the shake-up could turn out.
As of June 14, the aggregate value of the information technology stocks in the index was 0.78% lower than it was on March 15, in the most recent rebalancing, Silverblatt said, while real-estate companies’ value rose by 0.59%.
The figures are based on the value of the stock available for trading—the so-called free float—so both moves in prices and share buybacks affect the results.
Tech stocks’ representation in the index was 21.228%, down from 21.307% on March 15, based on the June 14 data. Real-estate stocks moved to 3.171% from 3.140%.
Apple’s (ticker: AAPL) adjusted market value fell by $20.9 billion, a 2.42% dip. That would imply a lower representation in the index, although Silverblatt didn’t provide a figure. He planned to issue data on stock repurchases later this week, but he said in a phone interview that Apple has undergone “enormous” buybacks.
Apple spent around $62.9 billion in buybacks in the first nine months of 2018, more than 10% of the $583.4 billion of stock S&P 500 companies bought back in aggregate.
An Apple spokesperson referred to comments made by Chief Financial Officer Luca Maestri during the company’s April earnings call. Maestri cited management’s “confidence in Apple’s future and the value we see in our stock” when discussing an additional $75 billion for share repurchases, as well as its recent dividend hike.
(FB) added $3.08 billion in adjusted market value, for a 0.71% change.
Silverblatt estimated buybacks in the first quarter were the second-highest on record, exceeded only by the total in the fourth quarter of 2018. “It is still an enormous amount of money that companies are spending,” he said, noting that the pace of buybacks hit records each quarter last year. “It’s like winning the lottery four times in a row, then you come in second.”
Asset managers that track the S&P 500 under license from the company will have to buy and sell an additional $24.3 billion of stock to adjust their holdings to match the rebalanced index, Silverblatt estimated. That is down from $31.6 billion in the first quarter and $25.9 billion year over year.
Trading on Friday, the last session before the rebalancing, is likely to be volatile. Futures and options on both stocks and stock indexes are due to expire, marking a so-called quadruple witching day for markets.
Write to Connor Smith at Connor.Smith@barrons.com