Last Friday marked a significant shift in the FTSE Russell index as shares in companies like Netflix, PayPal, and Facebook’s parent company, Meta Platforms, were designated value stocks instead of their previous status as growth stocks.
The re-designation of the three tech companies’ stocks was part of an annual process by which the FTSE Russell “rebalances” or reconstitutes its indexes, making important adjustments in its valuations of companies.
Payal Shah, director of equity research and product development at CME Group, explained to Forbes, “The annual reconstitution requires thoughtful and well-executed risk management on the part of investors. It is one of the most significant drivers of short-term shifts in supply and demand for U.S. equities, often leading to sizable price movements and volatility in individual companies or industry sectors.”
In other words, as Bloomberg puts it, reconstitution makes for some of the busiest and craziest minutes of the trading year.
Netflix, Paypal, and Meta have seen significant downturns in their stock prices since the start of the year, likely explaining their reclassification by FTSE Russell.
Meta closed out 2021 at $336.35 per share. On Monday, it closed at $169.49.
PayPal ended last year with a price of $188.58 per share. It clocked $75.94 at Monday’s close.
Then there is Netflix, which sustained the steepest drop in share price, trading at $602.44 per share at the end of the year. It closed Monday at $189.14.
All three companies are part of the tech sector, one of the worst-performing areas of the stock market in 2022. In contrast, energy companies are thriving due to skyrocketing fuel prices, partly due to Russia’s war in Ukraine and the subsequent sanctions the former incurred.