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Friday's Russell rebalance may stoke more volatility in nervous stock market

By Chuck Mikolajczak NEW YORK (Reuters) - Investors in the volatile U.S. stock market are preparing for what may be one of the heaviest trading days of the year on Friday, as FTSE...
Friday's Russell rebalance may stoke more volatility in nervous stock market © Reuters. FILE PHOTO: A monitor displays stock market information on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., May 18, 2022. REUTERS/Andrew Kelly

By Chuck Mikolajczak

NEW YORK (Reuters) - Investors in the volatile U.S. stock market are preparing for what may be one of the heaviest trading days of the year on Friday, as FTSE Russell completes the rebalancing of indexes that are tracked by trillions of dollars in investor funds.

FTSE Russell refreshes the components of its indexes once a year in late June to better reflect broader markets. This spurs fund managers who have benchmarked their performance to the indexes to bring their own portfolios in line with the changes. Some $12 trillion is benchmarked to Russell’s U.S. indexes.

The resulting buying and selling tends to peak at the close of the trading session before the reconstitution is final, and some investors seek to trade on any price dislocations that may result. Total trading volume on the day of the 2021 reconstitution topped 16 billion shares, putting it among last year's busiest sessions.

While past rebalancings have usually gone off without a hitch, some investors said the event is more likely to exacerbate volatility this year, after worries over a more hawkish Federal Reserve have slammed stocks and bonds and ramped up market gyrations in recent weeks.

The benchmark S&P 500 has fallen more than 21% year-to-date, as the Fed tightens monetary policy to tame soaring inflation.

“The Federal Reserve is hiking interest rates, we are seeing liquidity dry up and while there is ample cash in the equity market, certainly with negative sentiment it is going to be a tougher story to get that rebalancing done," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.

One of this year’s biggest changes will see Meta Platforms’, formerly Facebook (NASDAQ:META), move to the Russell 1000 value index, normally the domain of companies perceived to be trading at a discount to their fundamentals. At the same time, energy stocks will receive a greater weighting in the Russell 1000 growth index, after a blistering rally over the last year.

Meta's move to the Russell 1000 value index follows a more than 50% tumble in the social media giant's shares this year on company warnings of faltering revenues after a decade of furious growth.

The change will cause the weighting of the communication services sector in the Russell 1000 growth index to drop to 8% from 9.9%, while bolstering the sector’s weight in the Russell 1000 value index to 8.7% from 6.9%, according to Jefferies.

Meanwhile, the stellar performance of the energy sector will lead to a heavier weighting of energy shares in the Russell growth indexes, Jefferies said.

The energy sector, which has climbed nearly 40% since the last year's reconstitution thanks to a sharp rise in crude prices, will see its weighting increase to 1.7% in the Russell 1000 growth index, from 0.6%.

The move is even more pronounced in the Russell MidCap Growth index with energy taking a 5.1% weighting, up from 3.3%.

"Growth managers that have not had to pay attention to energy for several years, now have to pay attention to the sector," said Steve DeSanctis, equity strategist at Jefferies in New York.

Given the volume of the trading and number of stocks involved, FTSE Russell takes steps to be transparent regarding the rules for inclusion. This starts in May on its "rank day," which determines the market capitalization bands a stock must be within for inclusion. Subsequent steps include preliminary lists of the additions and deletions from the indexes.

"We don’t want to make unnecessary changes, any methodology changes are thoughtful,” said Catherine Yoshimoto, Director of Product Management for the Russell US Indexes at FTSE Russell. “We are looking at where there may be future improvements but the goal is definitely to keep it stable

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08-07-2022 00:44:17 (UTC+7)

EUR/USD

1.0153

-0.0028 (-0.28%)

Summary

Buy

Moving Avg:

Buy (6)

Sell (6)

Indicators:

Buy (8)

Sell (0)

EUR/USD

1.0153

-0.0028 (-0.28%)

Summary

Buy

Moving Avg:

Buy (6)

Sell (6)

Indicators:

Buy (8)

Sell (0)

GBP/USD

1.2004

+0.0074 (+0.62%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

Indicators:

Buy (7)

Sell (1)

USD/JPY

136.04

+0.10 (+0.08%)

Summary

Neutral

Moving Avg:

Buy (6)

Sell (6)

Indicators:

Buy (2)

Sell (5)

AUD/USD

0.6836

+0.0061 (+0.90%)

Summary

↑ Buy

Moving Avg:

Buy (11)

Sell (1)

Indicators:

Buy (6)

Sell (0)

USD/CAD

1.2985

-0.0051 (-0.39%)

Summary

↑ Sell

Moving Avg:

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Sell (9)

EUR/JPY

138.12

-0.26 (-0.18%)

Summary

Buy

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Sell (6)

Indicators:

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Sell (1)

EUR/CHF

0.9893

+0.0013 (+0.13%)

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↑ Buy

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Gold Futures

1,738.55

+2.05 (+0.12%)

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↑ Sell

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Indicators:

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Silver Futures

19.177

+0.018 (+0.09%)

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Copper Futures

3.5565

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Neutral

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Crude Oil WTI Futures

103.41

+4.88 (+4.95%)

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Neutral

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Brent Oil Futures

105.30

+4.61 (+4.58%)

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Neutral

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Natural Gas Futures

6.204

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US Coffee C Futures

218.53

-0.67 (-0.31%)

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Indicators:

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Euro Stoxx 50

3,488.50

+66.66 (+1.95%)

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↑ Sell

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Indicators:

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S&P 500

3,893.10

+48.02 (+1.25%)

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↑ Buy

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DAX

12,843.22

+248.70 (+1.97%)

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Neutral

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Buy (2)

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FTSE 100

7,189.08

+81.31 (+1.14%)

Summary

↑ Sell

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Sell (12)

Indicators:

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Sell (10)

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21,643.58

+56.92 (+0.26%)

Summary

↑ Buy

Moving Avg:

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Sell (0)

Indicators:

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Sell (0)

US Small Cap 2000

1,767.75

+37.51 (+2.17%)

Summary

↑ Buy

Moving Avg:

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Sell (0)

Indicators:

Buy (8)

Sell (0)

IBEX 35

8,122.50

+173.90 (+2.19%)

Summary

↑ Buy

Moving Avg:

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Sell (0)

Indicators:

Buy (4)

Sell (3)

BASF SE NA O.N.

41.300

+1.550 (+3.90%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

Indicators:

Buy (7)

Sell (1)

Bayer AG NA

56.59

+0.40 (+0.71%)

Summary

Sell

Moving Avg:

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Sell (11)

Indicators:

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Allianz SE VNA O.N.

178.46

+2.96 (+1.69%)

Summary

Buy

Moving Avg:

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Sell (1)

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Sell (2)

Adidas AG

169.28

+4.74 (+2.88%)

Summary

↑ Buy

Moving Avg:

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Sell (0)

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Buy (8)

Sell (0)

Deutsche Lufthansa AG

5.764

+0.254 (+4.61%)

Summary

↑ Buy

Moving Avg:

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Sell (5)

Indicators:

Buy (7)

Sell (2)

Siemens AG Class N

97.71

+1.66 (+1.73%)

Summary

↑ Buy

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Deutsche Bank AG

7.983

+0.295 (+3.84%)

Summary

↑ Sell

Moving Avg:

Buy (4)

Sell (8)

Indicators:

Buy (0)

Sell (8)

 EUR/USD1.0153Buy
 GBP/USD1.2004↑ Buy
 USD/JPY136.04Neutral
 AUD/USD0.6836↑ Buy
 USD/CAD1.2985↑ Sell
 EUR/JPY138.12Buy
 EUR/CHF0.9893↑ Buy
 Gold1,738.55↑ Sell
 Silver19.177↑ Sell
 Copper3.5565Neutral
 Crude Oil WTI103.41Neutral
 Brent Oil105.30Neutral
 Natural Gas6.204↑ Sell
 US Coffee C218.53↑ Sell
 Euro Stoxx 503,488.50↑ Sell
 S&P 5003,893.10↑ Buy
 DAX12,843.22Neutral
 FTSE 1007,189.08↑ Sell
 Hang Seng21,643.58↑ Buy
 Small Cap 20001,767.75↑ Buy
 IBEX 358,122.50↑ Buy
 BASF41.300↑ Buy
 Bayer56.59Sell
 Allianz178.46Buy
 Adidas169.28↑ Buy
 Lufthansa5.764↑ Buy
 Siemens AG97.71↑ Buy
 Deutsche Bank AG7.983↑ Sell
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Cập nhật lúc 18:49:11 07/07/2022
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