The Nasdaq-100 culls its lesser stocks

No stock index ever stays the same.

Things change. 

Consider the Dow Jones Industrial Average  (^DJI) - Get Free Report, which had 12 components when it was first established in 1896 by Charles Dow. 

Of those 12, only one company still remains alive under its original name: General Electric  (GE) - Get Free Report, and it was taken out of the Dow in 2018. It also has spun off a number of subsidiaries into new publicly held companies.

One of the 12, United States Leather, ultimately went out of business. 

The rest have new names or were merged into other companies. United States Rubber morphed into tiremaker Uniroyal and is now part of Michelin  (MGDDY) - Get Free Report.

The operators of stock indexes know this and routinely adjust their components to account for mergers, liquidations, economic and changing business conditions. Sometimes, the market caps for the stocks are just too small. 

The last change to the Dow came in August 2020 when Amgen  (AMGN) - Get Free Report, Honeywell International  (HON) - Get Free Report  and Salesforce Inc.  (CRM) - Get Free Report replaced Exxon Mobil  (XOM) - Get Free Report, Pfizer  (PFE) - Get Free Report and Raytheon Technologies  (RTN) - Get Free Report.

The S&P 500's  (^IN) - Get Free Report latest changes come Dec. 18 when ride-sharing operator Uber  (UBER) - Get Free Report, electronic-components maker Jabil  (JBL) - Get Free Report, and Builders FirstSource  (BLDR) - Get Free Report, manufacturer of building materials and related products, join the index. 

Now it's the turn of the Nasdaq-100 Index  (^NDX) - Get Free Report, arguably the hottest U.S. index, up 47% so far this year. 

Nasdaq Inc.  (NDAQ) - Get Free Report, which runs the index, revises the components for the index at least annually in December, subbing out lesser performers with companies to have great prospects. Typically to get in, companies have to be eligible (i.e., not financial stocks) and are the largest 100 companies in a candidate list ranked by market capitalization.

Coming in on Dec. 18 are: 

• CDW Corp  (CDW) - Get Free Report
•  Coca-Cola Europacific Partners  (CCEP) - Get Free Report
• Delivery service DoorDash  (DASH) - Get Free Report
• Database builder MongoDB  (MDB) - Get Free Report
• Software-and-technology company Roper Technologies  (ROP) - Get Free Report 
• Software analysis company Splunk  (SPLK) - Get Free Report.

The best-known company leaving the index is ecommerce company -- and dot-com pioneer -- eBay  (EBAY) - Get Free Report. A Nasdaq-100 member since 1999, eBay has provided a way for sellers and buyers of everything from cameras to 1880s political memorabilia to find each other.  The shares are basically flat this year and fell nearly 38% in 2022. Its closing peak was $80.59 in 2022. 

Also leaving is electric-vehicle Lucid  (LCID) - Get Free Report, which went public in 2021 and joined the index that December. Its deletion was likely because of heavy losses from the extreme challenges electric-vehicle startups are having getting into the market. The shares are off 75% from their 52-week high.

And there's Zoom Video Communications  (ZM) - Get Free Report, the internet communications company that kept businesses and, of course, family and friends in touch during the Covid-19 pandemic. Zoom was added in April 2020. 

Also leaving are 

• Chinese e-commerce company JD.com  (JDCMF) - Get Free Report
• Orthodontic-devices maker Align Technology  (ALGN) - Get Free Report
• Solar-energy tech company Enphase  (ENPH) - Get Free Report, added to the index just a year ago.

The moves will affect index funds, exchange-traded funds and other vehicles built to mimic the index because fund managers have to buy the stocks going in and sell those leaving.

The moves may add a percentage point to the prices of the newcomer stocks. Nasdaq says that average effect on the upside is 1%, measured from five days before the inclusion is announced until five days afterward. 

The deletions will prompt selling, often before the announcement. 

The Nasdaq-100 is a modified market-cap weighted index: That means the larger the market cap, the more influence on the value of the index. But the rules allow for a special rebalancing of the weights of individual stocks  especially if things get unbalanced.G

In July, in fact, with the index soaring, the Nasdaq decided to rebalance the index because, as Todd Campbell noted, the market cap of the biggest stocks had swamped the index. 

Microsoft MSFT, Apple  (AAPL) - Get Free Report, Nvidia NVDA, Amazon.com  (AMZN) - Get Free Report, Tesla  (TSLA) - Get Free Report, Meta Platforms  (META) - Get Free Report, and the two classes of Alphabet ( (GOOG) - Get Free Report and  (GOOGL) - Get Free Report) combined represented 54.6% of the market cap of all the stocks in the index. So, the Nasdaq reduced the weights of that group.

The six stocks being removed on Dec. 17 combined represented just 0.83% of the total market cap.