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Chart of the Day
Google owner’s voting rights are valued at less than zero
Investors in Google’s owner, Alphabet Inc., would rather not have the right to vote these days. Class A voting shares of the Internet-search site have closed as much as 4.3% lower this month than Class C non-voting stock, according to data compiled by Bloomberg. The discount compares with an average premium of 1.3% since the C shares were introduced in 2014. Both classes are part of the S&P 500 Index. Google’s founders, Larry Page and Sergey Brin, together control more than 50% of Alphabet’s voting rights by owning Class B shares.
Russell Rebalance; The Busiest Day Of The Year
Here’s a story for you. When I was out hounding business for my S&P operation, I thought about one thing and one thing only: The S&P 500 futures — and I did a good job.
But out of the S&P business came other indices like the Russell 2000 (RTY) and the Midcap futures (EMD). However, in my narrow mind they were too small. Why would I bother with the Midcap that only did a few thousand contracts a day when I was doing thousands of S&Ps?
In the beginning I did not understand that all those other products mattered, but when I started doing the AIG and BofA spreads (rolling), I started to understand how the different “books” worked. It was all tied to the risk of the positions the banks had on.
If a big institution called Raj’s desk at BofA and they wanted to buy billions of dollars of Russell 2000stocks, he would make a price, then lay off the risk of the trade by buying Russell futures and options. As time went by, we became one of the largest rollers of the Russell 2000 futures spread. BofA’s position was 35,000 Russell futures or the equivalent of 17.5 million IMW. While the spread was liquid, buying and selling outright futures in the pit was very trying.
There were only 6 or 8 traders in the pit — much different than the S&P pit — so moving size was difficult. This was when I first started learning about the index rotations, because when the Russell was up we would have to use the pit to buy the futures to protect the positions.
Because the S&P futures had such a big reputation, most futures traders didn’t pay much attention to the Russell on the floor. However, I would pay close attention to the “Russell Reconstruction” Fridays rebalance, which happens every June.
This is when the Russell Family of indexes is reconstituted to account for the changes in the previous year. It is always a serious event, but the Covid-19 pandemic will make this year’s rebalance even more important. Literally, the Russell 2000 has been part of every intra-day rebalance since March of 2020. As investors moved into the at-home stocks, it was one of the largest rotations. Now the rotation out of the at-homes stocks into growth continues today with the Russell being center stage. All the so-called meme-stocks only add to it. You know, the AMCs and GameStops of the world.
Friday’s reconstruction is a market-moving event which will impact more than $10.6 trillion in investor assets benchmarked to, or invested in, products based on the Russell US Indexes.
According to the FTSE Russell Friday rebalance
Total US equity market capitalization increased 52% reaching $47.7 trillion as of May 2021.
Market cap breakpoint separating small-caps (Russell 2000 Index) and large-caps (Russell 1000 Index) increased by 73%.
Do four companies exceeded $1 trillion in total market cap, with Alphabet joining Microsoft, Apple & Amazon, which reached this milestone in 2020.
Tesla and JP Morgan Chase & Co. join the top ten companies in the Russell US Indexes.
What does it all mean? It means some of the largest stock liquidity and highest volumes of the year all in the final 30 minutes of Friday’s trading session is coming. Will it impact the other indices like the S&P, Dow, and Nasdaq? Most definitely!
MrTopStep is dedicated to the education of trades so here is the link to read all about Friday’s big event. I know the floors are closed and there are no more traders jumping up and down, bidding and offering but this is a great opportunity to learn (like I did) about what rebalancing really means.
The chat room and the MiM will also help showcase the imbalances we see late in the day. Just a few months ago, it plucked out the biggest movers of the day and allowed us to capitalize on it.
The most distinctive trade over the last 3-plus weeks has been selling the up opens or selling the early rallies and buying the mid-morning pullbacks. Then wait to get a look at the late-day price action. It’s my guess that the ETFs and mutual funds have already started the Russell rebalance.
Danny Riley is a 39-year veteran of the CME trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
As always, please use protective buy and sell stops when trading futures and options.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Decisions to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS