Apple wins big as index trades hit Wall Street

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An action-packed week on Wall Street ends with a bang as index-tracking funds are set to reshuffle US$250 billion of shares, just as a “triple witching” trading event hits.

Equity gauges from S&P Dow Jones Indices and FTSE Russell will be revamped Friday, with this quarterly activity forecast to be the busiest in almost four years thanks to tech-driven market gyrations.

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Apple Inc.’s weighting will be increased in key benchmarks after Warren Buffett’s recent share sale. At the same time, new S&P index-capping rules, which govern allocations for the largest companies, are scheduled to kick in.

With fresh demand among benchmark trackers for the likes of Apple and new additions to the S&P 500 — Palantir Technologies Inc. and Dell Technologies Inc. — computer and software shares will buck the broad trend of net outflows for other industries, Piper Sandler & Co. estimates show.

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All told, tech names are expected to see US$40 billion of net buying, with Apple making up the bulk, Piper data shows.

“Tech will be the only sector net to buy,” said Michael Kantrowitz, Piper’s chief investment strategist.

The rebalance is set to round out a big week, between the United States Federal Reserve’s first interest-rate cut in four years and a quarterly episode known as “triple witching.” With US$5.1 trillion of derivatives tied to stocks and indexes scheduled to mature Friday, that can spur market turbulence as traders roll over their existing positions or start new ones.

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Still, the index-related reshuffle is by no means an ominous event. Given money managers tend to trade stocks near the session’s close in order to avoid unnecessary deviation from benchmarks such as the S&P 500 index and the Russell 3000 index, that spurt of concentrated volume can provide a window of robust liquidity for the broader market.

The iPhone maker’s index representation is set to increase after Buffett’s sale fully unleashed the amount of stock available for trading. In turn, index-tracking funds will need to purchase the shares to mimic its growing heft.

Additionally, S&P rejigged the rules that determine the influence wielded by the largest firms in its select sector indexes. From now on, passively managed vehicles such as Technology Select Sector SPDR Fund (XLK) will cap the biggest stocks in proportion to their capitalization, as opposed to a previous approach where the smallest of the group gets their weighting trimmed at first.

Bloomberg.com

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