Tonight the S&P 500 is changing the lineup of the 11 company sectors that make up the benchmark index – it’s the biggest shake-up ever and will see major tech stocks group together in a new sub-index, which will attract billions of dollars on direct and indirect investment (via ETFs).
On top of these changes, Wall Street will also be facing up to another rate in rates from the US Federal Reserve early Thursday morning, Sydney time and the fallout from the Senate inquiry into the Supreme Court nominee, Brett Kavanaugh.
Over the week US shares rose 0.9%, Eurozone shares gained 2.1%, Japanese shares rose 3.4%, Chinese shares rose 5.2%, but Australian shares were only up 0.5% and still haven’t made up the 2.8% slide from three weeks ago.
The changes to the Global Industry Classification Standard (GICS) classification system are the largest since its inception in 1999. S&P Dow Jones Indices is moving 16 stocks including Facebook, Alphabet, and Netflix from the information technology into a rebadged communication services sector.
The change is forcing investors to rebalance and exchange-traded funds, or ETFs, and other funds that track the S&P 500’s sectors to make trades to reflect the new alignment of the index.
Analysts say a lot of rebalancing going on Thursday and Friday and see it continuing this week. Friday was “quadruple witching” day, when options and futures contracts expire, which often results in heavy trading.
As a result of that and the rebalancing, more than 10.9 billion shares were traded on Friday, the heaviest trading day since a bout of market turmoil in February.
Some of the largest shares affected by the moves saw elevated volumes.
Those included not just the stocks that are switching sector but also giants like Apple, which from Monday will be a larger constituent of the tech sector and the funds that track it.
All that probably resulted in the S&P 500 being unable to match the Dow by closing at a record high for a second consecutive session on Friday, as tech stocks weighed on the broader market and erased early gains.
Technology stocks were the best performing sector ahead of the index rebalance and telcos were among the weakest (the telco sub index will feature just three shares after the rebalance occurs).
The Dow on Thursday topped its previous January peak to join the S&P 500 to close at a record high. On Friday, the S&P 500 finished less than 0.1% lower — its first drop in four sessions
The Dow closed about 0.3% higher at a record on Friday. The Nasdaq fell 0.5% and the Nasdaq lost half a per cent. For the week the Dow rose 2.3% and on booked its biggest weekly percentage gain since July. The S&P 500 rose 0.9%, but the Nasdaq ended down 0.3%.
The US’s trade war with China remained a constant backdrop, but sentiment improved after the levies imposed by Washington on $US200 billion of Chinese imports were not as steep as initially expected.
Metal prices, led by copper staged a big rally on Friday in response to a change of attitude toward the impact of the trade war (see separate story).
The yield on the benchmark 10-year US Treasury was 1.3 basis points lower at 3.0646% on Friday but higher over the week.
The dollar US firmed (but the Aussie dollar rose to just under 73 US cents, up 1.5 cents over the week).
