The Nasdaq-100 index is getting a makeover

By CNN Newsource

Published July 14, 2023 4:01 AM

Analysis by Krystal Hur, CNN

(CNN) — The Nasdaq-100 index is getting a fresh look.

What happened: The index comprises 100 of the largest non-financial companies listed on the Nasdaq. The popular Invesco QQQ exchange-traded fund tracks the index.

Seven companies listed in the Nasdaq-100 accounted for roughly 51% of the index as of June 3, according to a note by Louis Navellier, chairman of Navellier & Associates. The Nasdaq is looking to fix that problem – without changing any of the stocks in the index.

Those top seven stocks, Amazon, Apple, Alphabet, Meta Platforms, Microsoft, Nvidia and Tesla, dubbed by some the Magnificent Seven, have skyrocketed this year on artificial intelligence buzz. They have also driven the lion’s share of the market’s rally this year, though the market’s run has widened in recent weeks to include a more diverse basket of stocks.

Nvidia shares have surged about 215% for the year, Apple jumped 47% and Microsoft gained 43%. Nvidia reached a $1 trillion market cap earlier this year, while Apple topped a $3 trillion market cap last month.

The huge gains mean that these big tech stocks have become bloated in some indexes, which are often weighted by market capitalization. That can pose a problem to investors, since it leaves the market vulnerable to large swings driven by just a handful of companies.

Donald Calcagni, chief investment officer at Mercer Advisors, says investors should be careful when examining an index like the Nasdaq-100’s performance, especially when considering its run is highly concentrated in just a handful of stocks with sky-high valuations.

“Investors should really reassess what’s in their portfolio — why is it in their portfolio? And are they comfortable with the risks that they’re taking?” said Calcagni.

What’s a special rebalance? The tech-heavy index will undergo a “special rebalance” in just a couple weeks, according to Nasdaq.

While the Nasdaq-100 is rebalanced quarterly, a special rebalance can take place “to address overconcentration in the index by redistributing the weights,” Nasdaq said in a press release.

Nasdaq won’t remove or add any stocks to the index during this rebalance, according to the release.

The Nasdaq can rebalance the index outside of its normal quarterly schedule so that issuers with individual weightings that exceed 4.5% don’t surpass a combined 48% of the entire index, per the company’s methodology.

Special rebalances of the Nasdaq-100 have happened before in 1998 and 2011, according to Cameron Lilja, vice president and global head of index product and operations at Nasdaq. Stocks fell sharply in the late 1990s, after investors bought up shares of internet based companies that failed to become profitable. In 2011, a debt crisis in Europe hurt US stocks.

Iger to DeSantis: Disney does not sexualize children

Disney CEO Bob Iger on Thursday vehemently denied accusations from right-wing critics that the company has inappropriate sexual content in its programming.

Florida Gov. Ron DeSantis said in March that Disney adds “sexuality into the programming for young kids.” Other public right-wing figures have leveraged similar accusations against the company, including former Fox News host Tucker Carlson, who has said that Disney has “a sexual agenda for six-year-old children.”

“The notion that Disney is in any way sexualizing children is preposterous and inaccurate,” Iger said in a CNBC interview.

Such accusations have ramped up since last March, after Disney executives spoke out against a Florida law banning schools from teaching students about sexual orientation and gender identity. Critics call it the “Don’t Say Gay” law.

“We are concerned [DeSantis] has decided to retaliate against the company for taking a position on pending legislation,” Iger said.

Remote work could cost office values $800 billion

Working from home could erase $800 billion from the value of office buildings in major cities globally by 2030, reports my colleague Hanna Ziady.

That’s according to a report from McKinsey Global Institute. Office attendance has held steady at 30% below pre-pandemic levels, with only 37% of employees working at the office every day, the report said.

The report is the latest to confirm that the pandemic-driven change in work habits that favor hybrid and remote work have put pressure on the value of commercial real estate.

These changes in employees’ habits have led some companies to downsize their vacant office spaces. Some firms have even turned to a permanent remote policy.