The annual shakeup to the Nasdaq 100 stock-market index may open up slots for Lucid Group Inc. and Airbnb Inc. Fortinet Inc., Palo Alto Networks Inc., Zscaler Inc., and Datadog Inc. will also be added to the index.
The Nasdaq 100 is made up of the largest non-financial companies listed on the exchange. While there’s no minimum requirement for market value. Its stocks must have an average daily trading volume of over 200,000 shares to be eligible.
JPMorgan expects that CDW Corp., Fox Corp., Cerner Corp., Check Point Software Technologies Ltd., Trip.com Group Ltd., and Incyte Corp. will be removed from the index to make way for the new entrants.
JPMorgan Chase & Co.’s Min Moon, the bank’s head of equity index research and program trading strategy, said in a report that the two could be added to the closely watched tech-heavy benchmark late Friday when the Nasdaq exchange will announce annual membership updates to account for changes in market capitalization.
Such moves take effect after the close of trading on Dec. 17. Palo Alto Network Inc., which shifted its listing over from the New York Stock Exchange in October in the hopes of being included in the Nasdaq 100, Fortinet Inc., Zscaler Inc., and Datadog Inc. are also potential candidates for the index, according to Moon.
All changes are effective as of the close on Dec. 17, the same day as the rebalancing of the S&P 500 Index takes effect.
The Nasdaq 100 is made up of the largest non-financial companies listed on the exchange. While there’s no minimum requirement for market value. Its stocks must have an average daily trading volume of over 200,000 shares to be eligible.
What’s Next
Stocks entering the index can benefit from increased liquidity. A broader investor base because passive index funds and actively managed ones that are measured against it buy the shares.
“That’s good for the companies because if they have to raise capital” that issuance “is going to happen at a higher valuation” and in turn a lower cost of capital, “which just makes it easier to fund projects,” Nasdaq Chief Economist Phil Mackintosh said before the rebalancing.
Despite the benefits of being in the Nasdaq 100, stocks do not always gain on the news. Only 64% of new additions finished up on the first day following the announcement, according to a study by Nasdaq.
That muted performance can be partly attributed to traders who buy-in ahead of the announcement using forecasts such as JPMorgan’s report, Mackintosh said. “Traders are already positioning for the news. So when the news comes out it might not be the big positive shock that you think because the markets like, ‘yeah we knew that stuff,’” he said.
While the immediate reaction might be a bit lackluster. Stocks do outperform the market by an average of 1% from five days pre-announcement to post-index inclusion, according to the Nasdaq study of Nasdaq 100 additions from 2010 to 2020.
The Nasdaq 100 is up 32 per cent over the past year, outperforming other benchmark indices such as the S&P 500 and the Dow Jones Industrial Average.