Buffett sold a lot of Apple, which caused Apple's stock price to experience a 'Black Monday,' but it also brought unexpected bullish news to Apple investors: Apple's influence in major stock indices will be fully released. For many years, the weight of Apple in a series of benchmark indices has been low, because Berkshire tends to hold its investments for the long term. The first revision of Apple's weight will not take place until the quarterly index rebalancing next month, but insiders point out that some traders often bet early in such events.
Last weekend, news came out that stock god Buffett unexpectedly sold a large amount of Apple stock in the second quarter, which led to a "Black Monday" for Apple's stock price and even the entire US stock market in the following trading day.
In fact, Buffett's sale brought some unexpected good news for Apple investors: Apple's influence in major indices will be fully released.
For years, Apple's weight in a series of benchmark indices has been low because Buffett's Berkshire Hathaway tends to hold its investments for the long term, making these holdings untradeable. Therefore, index providers calculate Apple's weight based on a method called market capitalization adjusted for free float. As a result, Apple's true weight has not been reflected in many indices.
In percentage terms, these numbers do not seem large. For example, in the S&P 500 index, Apple's market capitalization is currently considered 94%. However, investment banks and institutional securities firms such as Piper Sandler believe that this number should now rise to 100%. This difference is not small for a company with a market cap of $3 trillion.
According to Piper Sandler's estimate, when passive funds tracking relevant indices rebalance next time after Berkshire sells its Apple holdings, they may have to buy up to $40 billion worth of Apple stock. This is three times the average daily trading volume of the company's stock in the past month.
According to Piper Sandler's calculations, the entry of passive funds can fill a significant proportion of Berkshire's exit. As of the end of the second quarter, Berkshire's Apple shares were valued at $84.2 billion, and Apple's holdings in the second quarter fell from 0.789 billion shares in the first quarter to about 0.4 billion shares.
The mechanical influx of passive index funds into the market has been criticized by hedge fund Greenlight Capital's founder and CEO David Einhorn and other bigwigs who believe that passive investing fundamentally undermines the market by making so much money insensitive to value.
Some analysts believe that Buffett's halving of Apple's holdings reflects a lack of confidence in Apple's growth prospects, and Buffett has shown sensitivity on valuation.
Apple received some bad news this week as well. A US court ruled that Google's search business violated US antitrust law. To maintain its default search engine status, Google pays Apple a huge sum of money each year, and Google's loss in the lawsuit could affect about 17% of Apple's operating profit.
It should also be noted that the rise in Apple's weighting is bad news for some other companies in the index, whose weightings will be reduced to accommodate the change and whose stocks will also be sold off by passive funds.
The first revision of Apple's weighting will not take place until the next quarterly index rebalancing next month. Currently, the market is more focused on US economic growth and Federal Reserve monetary policy. Nevertheless, a group of traders are betting on events such as weight adjustments affecting stock prices. Piper Sandler's chief investment strategist said, "We often see trading activity resulting from rebalancing. People want to know this."
A spokesperson for S&P Dow Jones Indices declined to comment further on the relevant weighting adjustments.
This week, Apple's stock price has shown a trend of first suppression and then rebound. Although the low point on Monday of this week plummeted more than 10% from Friday's closing price, the closing decline narrowed significantly to 4.8%, and the cumulative decline this week was only 1.65%.
Editor/Emily