=DJ US Stocks Outlook: Market Will Rock And Roll On Friday
12/19/2002
Dow Jones News Services
(Copyright © 2002 Dow Jones & Company, Inc.)
By Karen Talley
. Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--There will be a whole lot of shaking going on Friday, with shares flying all over as investors furiously position themselves for a slew of events that kick in first thing Monday morning.
The changes involve Standard & Poor's and the Nasdaq - both of which roll out restructured indexes Monday - and the first "quadruple witching" day, when the expiration of single-stock futures, which began trading last month, is added to the traditional "triple witching" - the simultaneous expiration of options, index options and futures contracts.
"There is a very good chance we'll have a very volatile session," said Kent Engelke, chief market strategist at Anderson & Strudwick.
The volatility will likely be most apparent in markedly higher trading volume as investors scamper to buy and sell to make their positions mirror the restructured indexes that start trading at Monday's open.
Last year these simultaneous events occurred on Dec. 21, with S&P 500 volume creeping up in the days before, cresting at 2.17 billion shares on Dec. 21, and falling into the 550 million range the week after, as the holiday approached.
The Nasdaq 100 also had a ripping time, with volume also building then peaking at 1.11 billion on Dec. 21 and falling into the 500 million range in the days after.
Some of the most fierce action Friday may occur in the last part of the session, as investors rush to square their positions. Last year, the Nasdaq 100 fell 1% in the final minutes of trading on Dec. 21. But the index actually didn't move that much for the day - it closed up 21 points, or 1.3%. The S&P 500 ended up 5 points, or 0.4%, on Dec. 21 last year.
But those small moves belie what went on behind the scenes, as the massive volume shows. This year, Salomon Smith Barney estimates $3.4 billion worth of stock will change hands in connection with the S&P and Nasdaq 100 shifts. For portfolio managers to square their positions, 130 million shares will have to be bought and 230 million sold, Salomon says.
What's going on is the S&P 500 (large-cap), the S&P 400 (mid-cap) and the S&P 600 (small-cap) indexes are undergoing two changes: a semiannual shift of stocks between those that are considered "growth" stocks and those considered "value" stocks, and a quarterly reweighting to reflect companies' buybacks or issuance of stock over the last quarter. Both moves require buying and selling by fund managers that track the indexes so they can keep their positions in sync with the new market weightings.
The style rejiggering for the S&P 500 is based on companies' price-to-book ratios. A stock selling at a high price-to-book is considered a growth stock, traditionally belonging to a company with a track record of zippy profit growth. Stocks with low price-to-book ratios will be value stocks in S&P's reckoning. Value stocks are traditionally those that are cheaper than their peers or the market.
In the latest S&P refiguring, 12 companies are moving to growth from value, including Lucent Technologies Inc. (LU), Whirlpool Corp. (WHR), Emerson Electric Co. (EMR) and Citrix Systems Inc. (CTXS).
And 29 companies are shifting to value from growth, including Texas Instruments Inc. (TXN), McDonald's Corp. (MCD), Alberto-Culver Co. (ACV) and Home Depot Inc. (HD).
S&P is also changing, based on market capitalization, the weighting that some stocks carry in the indexes, which means their movements will carry more or less clout. Citigroup is receiving among the biggest boosts, going to 2.32% from 2.28% of the S&P 500's weighting. Microsoft will remain the largest member of the S&P 500, but its influence will fall just a bit, to 3.49% from 3.52%.
Over on the Nasdaq, the index of largest 100 nonfinancial stocks is seeing 15 additions and deletions, which will require some trading nimbleness on the part of index-fund managers.
Additions include to the Nasdaq 100 include Ross Stores Inc. (ROST), First Health Group Corp. (FHCC) and Fastenal Co. (FAST), while among those being deleted are PMC-Sierra Inc. (PMCS), Vitesse Semiconductor Corp. (VTSS) and Imclone Systems Inc. (IMCL), as well as other stocks that have gotten too small over the past year or don't meet listing requirements like enough daily float.
Then there is that old black magic from the triple, or in this case quadruple, witching on Friday - an event that always stirs the market's cauldron.
-By Karen Talley, Dow Jones Newswires, 201-938-5106; karen.talley@dowjones.com |
