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Apple Is a Big Victim in Nasdaq 100 Rebalancing

Apple's share price could be vulnerable to a sharp decline on or before May 2, the date that the Nasdaq OMX stock market set Tuesday for the rebalancing of its Nasdaq 100 index. The proportion of Apple's stock (AAPL) in the Nasdaq 100, now more than 20 percent of the index's value, will be cut to 12.33 percent.

The move will require the various exchange-traded funds pegged to the Nasdaq 100, which hold hundreds of billions of dollars, to reduce their exposure to Apple to conform to the new index weighting. Perhaps even more ominous for Apple shareholders, the multitude of institutional investors, such as mutual fund managers, that use the Nasdaq 100 as a benchmark may also reduce their holdings in order to avoid having portfolios and returns that deviate too much from the index.

There will be some winners in the rebalancing, too, as four Nasdaq 100 heavyweights get considerably heavier. Weightings for Microsoft (MSFT), Cisco Systems (CSCO), Intel (INTC) and Oracle (ORCL) will at least double, and the proportion of Google (GOOG) in the index will increase by a smaller amount.

Even though the rebalancing isn't due to occur until May 2, portfolio managers are likely to make their own adjustments ahead of the big day. That's what typically happens when a stock is added or dropped from a benchmark index like the Nasdaq 100 or the Standard & Poor's 500.