(Bloomberg) — An action-packed week on Wall Street ends with a bang as index funds prepare to reshuffle $250 billion worth of stocks just as a “triple witching” trading event unfolds.
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Stock indexes from S&P Dow Jones Indices and FTSE Russell are due for updates on Friday, with the quarterly trading forecast to be the busiest in nearly four years thanks to technology-driven market swings.
Apple Inc.'s weighting is set to rise in key benchmarks following Warren Buffett's recent stock sale. At the same time, new S&P index cap rules governing allocations to the largest companies are set to take effect.
Piper Sandler & Co. estimates show that with new demand among benchmark trackers such as Apple and new additions to the S&P 500 (Palantir Technologies Inc. and Dell Technologies Inc.), computer and software stocks will buck the general trend of net outflows from other industries.
In total, tech names are expected to see net buying of $40 billion, with Apple accounting for the bulk of it, Piper data shows.
“The technology sector will be the only net buyer,” said Michael Kantrowitz, chief investment strategist at Piper.
The rebalancing is set to cap an important week, sandwiched between the Federal Reserve’s first interest rate cut in four years and a quarterly episode known as triple witching. With $5.1 trillion worth of derivatives tied to stocks and indexes set to expire on Friday, that can create market turbulence as traders roll over existing positions or open new ones.
Still, index reshuffling is by no means an ominous development. Since fund managers typically trade stocks near the close of trading to avoid unnecessary deviations from benchmarks like the S&P 500 and Russell 3000, such a sudden surge in concentrated volume can provide a strong liquidity window for the broader market.
The iPhone maker's representation in the index will increase after Buffett's sale has fully freed up the number of shares available for trading. In turn, funds that track the index will have to buy the stock to mimic its growing weight.
In addition, S&P has changed the rules that determine the influence that the largest companies have in its select sector indexes. From now on, passively managed vehicles such as the Technology Select Sector SPDR Fund (XLK) will cap the largest stocks in proportion to their capitalization, unlike a previous approach in which the smallest in the group got their weighting trimmed at the start.
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