Traders face biggest index rebalancing in four years on Friday: Here's what to watch for

By Joseph Adinolfi

Tech stocks could be poised for a boost as Apple Inc.'s weighting in the S&P 500 is set to increase, while Palantir and Dell are due to be added

Investors are facing the busiest quarterly rebalancing in about four years on Friday in a shake-up that could affect roughly $250 billion worth of stocks, according to a team of equity analysts at Piper Sandler.

Changes announced by S&P Dow Jones Indices and FTSE Russell earlier this month will be reflected in the indexes as of the close on Friday. This means funds that track, or are benchmarked to, those indexes will need to adjust their holdings accordingly.

Typically, these changes are executed with little discernable impact on the broader market. But the sheer size of this quarter's rebalancing could leave a more substantial imprint.

"This quarter's review is shaping up to be the largest S&P rebalance by notional turnover since [Tesla] (TSLA) was added to the [S&P 500] in December of 2020 - perhaps even larger according to our historical estimates," the Piper Sandler team said in a report shared with MarketWatch.

What's more, this quarter's rebalancing is happening just as equity option contracts tied to more than $5 trillion in stocks are expiring. The first batch of expirations occurred earlier on Friday, with more expected to follow in the afternoon.

See: Traders brace for volatility as more than $5 trillion in options set to expire in latest 'triple witching'

Tech stocks in particular could see a bump, as that is the only sector expected to see net buying. One highlight is roughly $35 billion in Apple Inc. shares (AAPL) that must be bought after Berkshire Hathaway Inc.'s (BRK.B) decision to trim its stake in the consumer-technology giant increased the share count used by index providers to determine Apple's weighting in the index.

Shares of Broadcom Inc. (AVGO) and Amazon.com Inc. (AMZN) are expected to see their weighting in the S&P 500 increase, while shares of Palantir Technologies Inc. (PLTR) and Dell Technologies Inc. (DELL) are set to join the large-cap index.

Looking beyond tech, more than 500 companies are expected to trade more than one day's worth of average volume, including 50 large-cap companies, the Piper Sandler team said.

U.S. stocks drifted lower in early trading on Friday, with the S&P 500 SPX down 28 points, or 0.5%, at 5,685, with little market-moving news crossing the tape. The Dow Jones Industrial Average DJIA was off by 88 points, or 0.2%, at 41,937.

The Nasdaq Composite COMP was off by 119 points, or 0.7%, at 17,896.

-Joseph Adinolfi

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09-20-24 1117ET

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