How Friday’s trading could drive a $10 billion surge in demand for Nvidia shares

The Technology Select Sector SPDR Fund (XLK) is undergoing a rebalance based on Friday’s market caps, with Apple and Microsoft currently holding the top two spots at roughly 22% each. Despite being slightly behind these two leaders in market cap, Nvidia makes up less than 6% of the fund. The rebalance is crucial as a strong end to the week for Nvidia could potentially shift the standings in the $70 billion fund. The market caps of Microsoft, Apple, and Nvidia are all very close to each other, with a $100 billion difference as of Thursday’s close. The XLK uses a float-adjusted market cap to determine standings, so the final order will be confirmed by S & P Dow Jones Indices.

The potential for Nvidia to overtake Apple and climb to the second spot in the XLK fund could result in a significant shift in weights, with Nvidia potentially reaching 21% and Apple falling to 4.5%. This would require the fund to acquire over $10 billion worth of Nvidia shares, a significant undertaking considering the volume of Nvidia trading. While big shifts like these are unusual, they have occurred in the past, especially during rebalances around sector classification changes. The fund issuers, such as State Street, have a week to prepare for index changes, and professional traders may take advantage of the demand surrounding the rebalance.

The concentration of a few top tech stocks, such as Apple, Microsoft, and Nvidia, have raised concerns about portfolio diversification and concentration risk. These stocks have been driving the market rally, with Nvidia accounting for a significant portion of the S & P 500’s year-to-date gains. To mitigate these risks, investors may consider equal-weighted strategies, such as the SPDR NYSE Technology ETF (XNTK), to balance out the concentration risks while still participating in the tech sector’s growth. The XLK rebalance is just one example of the impact of a handful of stocks on stock portfolios, highlighting the challenges posed by over-reliance on a few key players in the market.

Overall, the XLK rebalance is closely watched by investors and traders, as a shift in standings could have significant implications for the tech sector. The competition between Apple, Microsoft, and Nvidia for the top spots in the fund underscores the dominance of a few key players in the market. As the rebalance date approaches, market participants will be keeping a close eye on the final order and potential changes in the XLK fund’s weightings. By understanding the factors driving the XLK rebalance and the potential implications for the tech sector, investors can make informed decisions about their portfolios in light of this significant event.