For some time, the debate over US inflation and the prospect of the Fed raising interest rates has affected the nerves of US stock markets. In addition to these factors this week, there is another major event that may affect the short-term performance of U. S. stocks, and that is the adjustment of the Russell Index.

The S & P 500 and the Dow Jones Industrial average accelerated their losses in the second half of last week after the Fed acknowledged higher-than-expected inflation and hinted at an early rate hike. However, U. S. stocks rebounded strongly in the first two trading days of the week as Fed officials stressed that they would maintain easing to continue to support the economic recovery.

Analysts pointed out that U. S. stocks rose sharply on Monday, but small-cap stocks were divided, although the Russell 2000 ETF outperformed the market, but the trend was volatile, and some sectors seemed illiquid, in part because the Russell Index components were about to adjust.

Stocks worth trillions of dollars will be affected by an annual adjustment to the composition of the Russell U. S. index after the close on Friday (June 25). And historically, the day of adjustment of Russell shares each year has become one of the largest trading days of the year.

Payal Shah of the Chicago Stock Exchange has previously said that adjusting the composition of the Russell index is a major event on the calendar of the US stock market and is one of the most important drivers of short-term changes in supply and demand in the market, which usually leads to significant price changes in a company or industry and increased price volatility. This not only brings risk to investors, but also provides alpha trading opportunities.

What are the possible changes in the composition of the Russell index?

According to Barron's, 15 companies related to electric vehicles and self-driving are expected to be included in the Russell 3000 index, highlighting the continued transformation of the automotive industry and the increasing importance of electric vehicle technology.

Among the stocks to be added to the Russell 3000 index are the better-known electric carmakers Lordstown Motors and Fisker, as well as companies that supply electric car manufacturers, such as battery technology company QuantumScape, and companies engaged in electric vehicle infrastructure, such as charging technology company Beam Global. It could also include Arcimoto, a small electric car maker, XL Fleet, an electric vehicle technology provider, Hyliion, an electric truck company, Ideanomics and Romeo Power, which support and supply the electric vehicle industry, and charging companies Blink Charging and ChargePoint.

On autopilot, four lidar companies are expected to join the Russell 3000 index, including Aeva Technologies, Luminar, Ouster and Velodyne Lidar.

Ernst & Young, one of the world's big four accounting firms, predicts that as countries' emissions regulations tighten and consumer demand grows, electric vehicles will outsell fuel vehicles in 2033, five years earlier than previously expected.

If these companies are included in the Russell 3000 index, it will be good news for their employees and investors.

First of all, it marks a milestone in the size of the company. The Russell 3000 index includes the 3000 largest companies in the United States by market capitalization, ranging in size from less than $200 million to more than $2 trillion.

Second, after the adjustment of the Russell 3000 index, fund managers are likely to adjust their portfolios, especially for illiquid small companies, to reflect the new weight and composition of the index. That means more investors will buy, sell or hold these stocks, helping to boost liquidity and even multiply valuations.

Shares of the 15 companies that could be included in the Russell 3000 are down an average of 24% so far this year, far underperforming the s & p and Dow, according to Barron's. These companies may take this opportunity to revive their share prices. The Russell 3000 is up 13% so far this year.

Other analysts predict that the epidemic will help some medical stocks and "home stocks" directly join or promote to the Russell 1000 index, which is made up of the 1000 companies with the largest market capitalization in the Russell 3000 index.

Peloton, a provider of home fitness equipment, is expected to be included directly in the Russell 3000 index, while telemedicine provider Teladoc is expected to be promoted into the large-cap index.

Jefferies predicts that after this adjustment, the weight of health care stocks in the Russell midcap growth index will rise 5.9 per cent, the weight in the Russell 1000 growth index will rise 1 per cent, and the weight in the Russell 2000 index will fall 1.7 per cent.

As for GameStop and AMC Entertainment Holdings, which are popular among retail investors in the US this year, whether they can rise from the Russell 2000 small-cap index to the Russell 1000, according to Catherine Yoshimoto, director of product management at FTSE Russell, to enter the Russell 1000, the existing components of the Russell 2000 must have a market capitalization of more than $7.3 billion as of May 7.

In other words, the game station is eligible to join the ranks of large-cap stocks with a market capitalization of $11.2 billion that day. AMC's market capitalization was just $4.3 billion on May 7, which is a disqualification. Since may 7, the share price of the game station has risen by about 36.9%, while AMC has risen by 547%. The different fates of the two companies may have an impact on the performance of the share price.

First of all, game post stocks may face selling pressure from index funds. By June 28th, all Russell 2000 index funds will have to sell the stock, while the Russell 1000 index fund will buy. Although passive funds that track the Russell 1000 broad, value and growth index have three times the size of passive funds that track the Russell 2000 index, game stations will have a very small weight in the large-cap stock index. This means that, overall, there will be more selling than buying.

Moreover, as the game station becomes a small fish in a big pond, its influence on active funds will diminish. Steven DeSanctis, strategist at Jefferies, said: "large-cap fund managers do not need to hold small-cap stocks. When it was still a member of the Russell 2000 index, its market capitalization was relatively large, and small-cap managers had to pay attention. Historically, stocks that have moved from the Russell 2000 to the Russell 1000 tend to lag behind small-cap indices in the following year.