Electric car-maker Tesla is joining the NASDAQ-100 today. It’s taking the place of tech giant Oracle, which is moving to the rival New York Stock Exchange. All that shuffling could have implications for lots of other companies’ stocks.
First thing, though: the NASDAQ -100 is not the NASDAQ you hear quoted every morning. That’s the NASDAQ Composite Index.
“So the NASDAQ-100 is a subset of that,” says John Jacobs, an executive vice president with the exchange.
It’s basically a list of the biggest, non-financial companies on the exchange — Apple, Starbucks, Whole Foods. Jacobs says that ranking normally gets updated at the end of the year or when one company leaves and another comes in.
“Tesla’s gonna go from zero to a weight, and the other 99 companies are all going to have to be rebalanced in their weight,” he says.
On a practical level, this often gives a boost to a new company.
Jim Rowley, a strategist with Vanguard which doesn’t have funds indexed to the NASDAQ 100, says when a list changes, index fund managers often buy the new stocks.
“Your job is to make sure the fund tracks exactly what the value of those stocks are in the index,” Rowley says.
By some estimates, as much as 50 cents out of every dollar invested in the stock market is going into products like index funds.