S&P Rebalancing and Financials
I had a thought last night which left me with more questions than answers:
The S&P 500 index rebalances semi-anually, and I think tonight is the night it happens.
When the list of what makes up the S&P 500 re-shuffles, the equities that dramatically underperformed the rest of the index will be removed. Now, let’s say a single industry did more poorly than the rest.
The result then is that the sector that underperformed will be correspondingly underrepresented in the S&P.
Given that financials took a dump in 2008 even worse than the rest of the world, they’re going to be pulled out of the S&P in larger measure, right?
Ok. So what is that going to do to the index at large, and what is THAT in turn going to do with reporting on the market?
The performance of the financial industry is going to be increasingly factored out.
Unfortunately I don’t have much in the way of predictions based on this. But I don’t think that financial equities are going to match the rest of the market, so what we’ll end up with is an index that’s a much more accurate representation of what’s going on, which is the point anyway.
I dunno. Just babbling. I’m still rolling this around in my head a bit. But I think there’s something here.
Tags: trading
December 31st, 2008 at 7:28 pm
More importantly: LEAP SECOND!
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