A summer Friday without any major news headlines is typically a pretty quiet day on Wall Street, but today is likely to be the highest volume day of this year. At the close, it is estimated that around $112 billion in stocks will be traded in huge blocks as the Russell indexes are rebalanced.
There are a number of Russell indexes that are impacted and they hold thousands of different stocks. The Russell 1000, as represented by the iShares Russell 1000 ETF (IWB) , holds big-cap names, and the Russell 2000, represented by the iShares Russell 2000 ETF (IWM) , holds small-caps names. There are trillions of dollars in passive index funds that are tied to these indexes.
In addition, there is a micro-cap fund (the iShares Russell Micro-Cap ETF (IWC) ), and the Russell 1000 and 2000 are further broken down into value and growth funds (iShares Russell 1000 Value ETF (IWD) , iShares Russell 2000 Value ETF (IWN) , iShares Russell 1000 Growth ETF (IWF) , iShares Russell 2000 Growth ETF (IWO) ).
This year there are some larger-than-usual moves as stocks such as Meta Platforms (META) , Netflix (NFLX) and PayPal (PYPL) move from the growth indexes to the value indexes. GameStop (GME) moves in the other direction, and there are hundreds of other stocks that will be moving around.
All of this buying and selling has nothing to do with fundamentals or technical patterns, but typically market players like to believe this movement is meaningful and can be extrapolated to indicate some sort of trend.
Trying to game these additions and deletions is extremely difficult. Brokers don't just buy a huge block of stock at the close. They have been accumulating the necessary shares for weeks and may employ complex options strategies so that they don't have big losses when they make the final transfer to the index funds at the close on Friday.
It is fascinating to see all the huge blocks transfer at the close, but they don't tell us very much about where stocks are heading in the future. It is possible to catch some increased volatility today, but no systematic way in which to do so.
We have a positive start to the day as stocks build on Thursday's strength, but much of that was probably just a precursor to the rebalancing that is occurring today.