Friday Is Russell Index Adjustment + Brexit Announcement Day

Friday Is Russell Index Adjustment + Brexit Announcement Day

Friday Is Russell Index Adjustment + Brexit Announcement Day


Friday could be Wild on Wall Street as traders react to the vote on British membership in the EU and adjust their portfolios to the annual reconstitution of  Russell stock indexes.

The annual FTSE Russell index adjustment, in which stocks are added to and subtracted from the Russell 2000 small company and Russell 1000 large company indexes, typically produces the year’s highest volumes.

This year, that effect will likely be exacerbated because active investors who might have otherwise jumped out in front of the Russell announcement may have been waiting for the so-called “Brexit” vote to conclude.

The Russell announcement is expected after the market close Friday.

There will be heavier-than-usual after-market trading then, as index manages race to adjust their portfolios so they can track their index benchmarks starting on Monday morning.

Options traders are betting on outsized volatility.

The CBOE Volatility Index (VIX), the favored gauge of investor anxiety over US stocks, ended Wednesday at 21.17, its highest close in 4 months. It pulled back Thursday, down 15.3% at 17.94, its biggest 1-day fall since 22 January.

The expected volume will not necessarily result in correspondingly extreme moves in share prices, traders say. But they concede that adding the Brexit vote results does increase the odds of a sharp market move in North or South.

UK citizens voted to leave the EU and world equity market are selling off.

Options on the S&P 500 index priced a 1.5% move for the index, in either direction, by Friday.

Financial stocks will also be active and could move Friday if there are surprises late Thursday when the US Fed releases results of its annual economic stress tests of US banks.

Shares of companies added to the Russell indexes would likely rise, while those dropped would fall.

Both the NYSE and NASDAQ have expressed confidence their systems will be able to handle the reconstitution trades. However, they have also put contingency plans in place to handle any unexpected interruptions, as they have in recent years.

FTSE Russell expects the day-ending volatility and can deal with any anomalies, said a company senior research analyst. “We are really not that concerned.”

Thursday, the US major market indexes finished at: DJIA +230.24 at 18011.07, NAS Comp +76.72 at 4910.04, S&P 500 +27.87 at 2113.32

Volume: Trade was light again with about 831-M/shares exchanged on the NYSE

  • S&P 500 +3.4% YTD
  • DJIA +3.4% YTD
  • Russell 2000 +3.0% YTD
  • NAS Comp -1.9% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.33) Bullish (0.28) Bullish (0.42) Bullish (0.29)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.30) Neutral (0.16) Bullish (0.44) Bullish (0.29)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (0.19) Neutral (-0.04) Bullish (0.35) Bullish (0.25)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.36) Bearish (-0.28) Very Bearish (-0.50) Bearish (-0.29)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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