Wells Fargo highlights Nasdaq 100 rebalance trade opportunities
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The go-to growth index is set for a special rebalance and history suggests near-term traders could now benefit, according to Wells Fargo.
The changes for the Nasdaq 100 (NDX) (NASDAQ:QQQ) rebalance will be announced on Friday, July 14 and take effect Friday, July 21 ahead of first trading on Monday, July 24.
"The upcoming NDX rebalance is reducing concentration risk but creating uber-cap selling pressure," Wells Fargo equity analyst Chris Harvey wrote in a note Tuesday. "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."
"History supports our near-term view. Up-sizers and down-sizers traded 'right way' in the last NDX special rebalance: In the ten days ahead of the 5/2/11 effective date, the ten most up-sized stocks returned an average +3.9%, while the ten most downsized names averaged +0.2% (total NDX: +2.0%)," Harvey said.
Wells Fargo strategist says the 2023's "top up-sizers" will be:

Starbucks (SBUX)
Mondelez (MDLZ)
Booking Holdings (BKNG)
Gilead Sciences (GILD)
Intuitive Surgical (ISRG)
Analog Devices (ADI)
Automatic Data Processing (ADP)

The "top down-sizers" will be:

Microsoft (MSFT)
Apple (AAPL)
Nvidia (NVDA)
Amazon (AMZN)
Tesla (TSLA)
Meta (META)
Alphabet (GOOG) (GOOGL)

Looking to liquidity, the strategy team estimates these tickers will have between 0.3 and 1.0 days of average daily volume for sale: MSFT, AAPL, AMZN, META, GOOG/L, Broadcom (AVGO), Costco (COST), PepsiCo (PEP) and Cisco (CSCO).
The 2023 rebalance was "driven by TSLAâs week-ago rally, causing the constituents weighing > 4.5% (MSFT, AAPL, GOOG/L, NVDA, AMZN, TSLA) to exceed 48% of the index," Harvey note. "Their collective weight will be down-sized to 40%."
"The largest estimated weight decreases will be MSFT (-1.8%), AAPL (-1.7%), NVDA (-1.0%), AMZN (-1.0%), and GOOG/L (-1.0%). All increases are <0.3%. 2023 changes are much smaller than in 2011, when seven stocks saw weight changes of >1% (max: AAPL, 8.2%; avg: 3.4%)."
"We believe this liquidity event dents - but does not break - the longer-term uber-cap trend," Harvey said. "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."

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