An overhaul of Wall Street’s technology and media sectors coincided with the quarterly expiration of futures and options, bringing a burst of volume to trading late on Friday that could continue in the days that follow.
After the close on Friday, S&P Dow Jones Indices was poised to reorganise several of its sectors and relaunch its telecommunications index as a new communication services sector.
About 10.87 billion shares changed hands on the U.S. exchanges on Friday, the highest volume since February 9 and one of the highest-volume sessions of the year, according to Thomson Reuters. A big chunk of the volume came in the last 15 minutes of the session. Of the S&P technology sector’s 10 biggest percentage decliners of the day on Friday, three were companies that are joining the new communication sector.
Biggest loser
Twitter was the biggest loser, with a 4.5% drop, while Facebook was the fourth-biggest decliner, with a 1.9% drop, and Alphabet saw the seventh-biggest loss, with a 1.6% drop. The reorganisation by S&P and MSCI of the Global Industry Classification Standard involves S&P 500 heavyweights such as Facebook Inc., Netflix Inc. and Alphabet Inc., and drastically alters the weightings of some sectors. The telecom sector, currently about 2% of the entire S&P 500, is expected to have a roughly 11% weighting under its new communication services tag. Technology, with a roughly 26% weighting, is expected to fall to about 20%.
Consumer discretionary is likely to drop from 13% to about 11%. On top of the index reshuffling and “quadruple witching” expirations, S&P also is implementing the quarterly rebalancing of its indexes.
Among the most active stocks on the New York Stock Exchange and Nasdaq on Friday were AT&T, Verizon Communications and Facebook, all of which will be in the new communication services sector. eBay, also in the top 25 most active stocks on the Nasdaq on Friday, is being moved from the technology into the consumer discretionary sector, which will result in fund managers needing to buy more than 2.7 million shares in the online marketplace, according to ITG. “The assets associated with the information technology ETF are greater, so this is actually a net positive for eBay in that fund managers will have to buy more shares than they will have to sell,” said Ivan Cajic, head of index research at ITG in New York.
Apple float to fall
“It will be a net positive demand for eBay.” Apple will remain in the tech sector but will see its share float fall about 5% due to Berkshire Hathaway’s growing position in the iPhone maker. ITG expects fund managers to sell more than 39 million shares due to the smaller float. Some strategists expect the sector changes to cause little disruption to the market because money managers have had a long time to prepare. S&P Dow Jones Indices announced the overhaul in November 2017.
“It has been well publicised that they were doing this, so it should not create all kinds of drama,” said Ken Polcari, director of the NYSE floor division at ONeil Securities in New York. Others said reshuffling by exchange-traded funds (ETFs) that are actively managed may result in higher volatility in the short-term
