Impact on Major Stock Indexes
Warren Buffett’s recent sale of a substantial amount of Apple stocks (NASDAQ:AAPL) is set to bring a significant change to major stock indexes. This development presents a positive twist for investors in the iPhone maker, as Apple’s influence in these benchmarks will now be fully realized.
For years, Apple’s impact on various stock indexes has been muted due to Berkshire Hathaway Inc. (NYSE:BRK.A) maintaining its investments for the long term, making them less available for trading. Consequently, index providers have used float-adjusted market capitalization to calculate Apple’s weight, which has not fully reflected the company’s value in many indexes.
Rebalancing and Market Implications
Currently, the S&P 500 Index reflects 94% of Apple’s true value, but this is expected to increase to 100%, according to estimates from Piper Sandler & Co. Given Apple’s $3 trillion market value, this adjustment is substantial. Following Berkshire’s sale, passive funds that track these indexes may need to purchase up to $40 billion worth of Apple stock during their next rebalancing. This figure is three times the average daily trading volume of Apple’s shares over the past month.
The influx of passive funds buying Apple stock could amplify criticisms from investors like David Einhorn, who believe passive investing has disrupted market dynamics by making large sums of money value-insensitive. Additionally, other companies within these indexes may face reduced weights, leading to their shares being sold by funds to accommodate the shift.
The first major changes will occur during the quarterly index rebalance next month. For now, the market focus remains on economic growth and central bank policies, but some traders are already positioning themselves in anticipation of these upcoming adjustments. Michael Kantrowitz, chief investment strategist at Piper Sandler, notes that rebalancing activities are closely monitored.
A S&P Dow Jones Indices spokesperson referred Bloomberg News to its index methodology and declined to comment further.
Featured Image: Unsplash
Author Faith Yakubu 
