Wells Fargo analysts reflected on the upcoming Nasdaq 100 Special Rebalance that is taking place on Friday, July 21.
A Special Rebalance is usually conducted to address overconcentration in the index by redistributing the weights. This particular move is focused on reducing concentration risk and reducing the dominance of the Big Seven, namely Microsoft (NASDAQ: MSFT ), Apple (NASDAQ: AAPL ), Nvidia (NASDAQ: NVDA ), Amazon.com (NASDAQ: AMZN ), Tesla (NASDAQ: TSLA ), Meta Platforms (NASDAQ: META ), and Alphabet (NASDAQ: GOOGL ).
“With uber-caps overbought, near-term liquidity demands will likely weigh on the group. In 2011, down-sized names lagged by 2-3% between announcement and event,” analysts said in a client note.
While these seven stocks will be down-sizers, Wells Fargo analysts expect the following stocks to benefit from the upcoming rebalancing: Starbucks (NASDAQ: SBUX ), Mondelez (NASDAQ: MDLZ ), Booking.com (NASDAQ: BKNG ), Gilead Sciences (NASDAQ: GILD ), Intuitive Surgical (NASDAQ: ISRG ), Analog Devices (NASDAQ: ADI ), and Automatic Data Processing (NASDAQ: ADP ).
Back to the down-sizers, analysts expect Microsoft’s weight to fall by 1.8%, while Apple should lose 1.7%. Nvidia, Amazon, and Google are expected to lose around 1%.
“We believe this liquidity event dents—but does not break—the longer-term uber-cap trend. In our view, similar to 2000, an aggressive Fed that pushes the US into recession is what ultimately undoes the uber-cap and “new economy” trades. As long as the economy remains in a malaise (i.e., not a recession), rather optimistic valuation premiums and growth estimates are difficult to refute,” analysts concluded.
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