A Major Market Catalyst That Could Shake Wall Street Has Nothing to Do With the Fed

Friday marks a quadruple witching day on Wall Street as stock options, index futures, and index futures options derivatives contracts simultaneously expire, so happy quad witching day to all who celebrate. 

However, while your attention may have been on the Fed and rightfully so, another market event may be sneaking up on you. June 23 will mark the end of an annual rebalancing of the Russell 2000 with reconstituted indices taking effect after the closing bell on the 23. 

In the video above, Jay Woods, the New York Stock Exchange's executive board governor, explained how the Russell reconstitution could impact markets in the week ahead. 

FULL VIDEO TRANSCRIPT: 

J.D. Durkin: Let me ask you about quad witching this Friday.

Jay Woods: Yes

J.D. Durkin: Right. It's a crucial day talking about volatility. We get a lot of high volume, especially in that crush of Friday afternoon. For people who might be a bit unfamiliar, give me the layman's guide quickly to what quad witching is, or at least why you follow it so closely and what you will be looking for this Friday, the 16?

Jay Woods: Well, we follow very closely because it’s the options expiration day and every – that close means more to the traders down here and to people that have these positions in anything and they all expire. So we are going to see a spike and surge in volume, not only this Friday with the quad witch, and that's a four-time event: third Friday in March, June and then I have to add three months, you know, December, and then what's in between there? September.

J.D. Durkin: I think that's right.

Jay Woods: A little backward, it is right. It's just the way I got there was, you know… the quad witch is a big event. And as someone that traded down here for 28 years, those closings can be chaotic. And we have another big close, and not enough of you guys are talking about the Russell reconstitution, a week from Friday. The Russell has been the story that no one talks about down here. Up 8%, it was the lagging index that, you know, you have the Nasdaq up 30% and 2000 of the small-cap stocks are doing nothing.

Jay Woods: They lifted their heads as we're rebalancing that index. So up 8%, now 7%, because it's down a percent today. As we head into their rebalancing, it's going to be very interesting. And you can see a lot of action behind you, on this floor, that day as well.