Friday Trading Frenzy Likely as Russell Reshuffle Takes Effect

(Bloomberg) -- Friday’s session will probably be one of the busiest of the year for equity traders as the annual Russell reshuffle is set to take effect.

The FTSE Russell’s rebalancing of stock indexes reliably boosts trading. At the same time, it rarely triggers big price swings in the market. Last year’s adjustment, which coincided with the Brexit vote, helped fuel a jump in volume to more than 15 billion shares, the highest total of the year. In four of the last five years, reconstitution day ranked in the 10 busiest trading sessions, data compiled by Bloomberg show.

Since 2008, the S&P 500 has moved more than 0.5 percent on the day of rebalancing only twice, in 2011 and 2016. The transition at the end of the day on June 23 should be an easy one, as investors are prepared for the changes, according to Steven DeSanctis, an equity strategist with Jefferies LLC. For the broader Russell 3000 index, DeSanctis sees 196 additions this year compared with 183 in 2016.

“Russell rebalancing gives the small-cap market a bit more liquidity and trading volume, and managers could take advantage of the better volume,” DeSanctis said. “We could also see some swings in performance from a handful of individual names, and that too can help active managers.”

DeSanctis is watching energy stocks as some companies will be added back into the Russell 2000 after dropping out amid bankruptcies. He’s also keeping an eye on financial stocks as investors evaluate allocations.

FTSE Russell’s global stock indexes are used as benchmarks for about $12.5 trillion in assets, the company said in May. An estimated $8.5 trillion in investments track Russell indexes in the U.S., which include the Russell 1000 and Russell 2000, according to Mathew Lystra, a senior research analyst with the London Stock Exchange Group.

To contact the reporters on this story: Felice Maranz in New York at fmaranz@bloomberg.net, Charlotte Chilton in New York at cchilton4@bloomberg.net, Lu Wang in New York at lwang8@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Catherine Larkin, Richard Richtmyer