Trader Talk

Extreme makeover! Russell indexes swap growth, value

Pisani's market open: IPOs & Russell reconstitution

A broad reconstitution of the Russell Indexes occurs at the close of Wall Street trading today. This annual event will re-balance all the indexes in the Russell universe, but in particular the large-cap Russell 1000 and small cap Russell 2000. Those indexed to the Russell indices will have to follow suit at the close, meaning they will have to buy and sell the stocks going in, and coming out of, the various indices.

That's a tall order, given that there is roughly $5 trillion indexed to these benchmarks. Fortunately, the indices are weighted according to market capitalization, so it is not difficult for Wall Street to put together lists in advance of what will have the biggest activity.

The exchanges routinely hold a conference call at 3 pm Eastern (just before the market close), to monitor for unusual market conditions.

Traders work on the floor of the New York Stock Exchange on March 26, 2014.
Getty Images

One interesting point is that there will be some movement between value and growth indices. For example, retailers were included in the growth index, but they have had a miserable year. With earnings decelerating, so many are being removed from growth and put into value.

Their miserable sales and earnings are reflected in their stock performance. Some builders like Pulte are also going into value.

Russell growth to value (Year-to-date):

Bed Bath & Beyond down 29 percent

Mattel down 17 percent

L Brands down 7.4 percent

Pulte down 2.3 percent

Conversely, many value stocks–names considered cheap by historic standards–have had notable earnings growth this year, and are being moved to growth. The key example here are sectors such as energy and airlines, as well as some financials like Ameritrade. The superior earnings growth is reflected in the stock performance of many energy and airlines:

Russell value to growth (YTD):

Noble Energy up 15 percent

Southwest Air up 43 percent

Helmerich & Payne up 37 percent

Ameritrade up 2 percent


The wave of initial public offerings continues to build although some fail to price.

On the NYSE, limited partnership NextEra Energy Partners, a carve out of NextEra Energy that will operate wind and solar energy projects, priced 16.2 million shares at $25, at the high end of the $23–$25 range.

On the NASDAQ, arts and crafts retailer Michaels priced 27.7 million shares at $17, at the low end of the $17 to $19 range.

MOKO Social Media, which runs a U.S. mobile ad network and an Australian flash-sale site, priced 1.1 million shares–slightly less than expected–at $7.50, at the low end of the $7.50 to $9 range.

Five biotech IPOs failed to price this week: Ambrx, KineMed, Micolin Bio, Syndax Pharma, and Globelmmune (which may price today), but will likely price next week. A sixth IPO, Taggares Agriculture (a farmland company) also failed to price.

--By CNBC's Bob Pisani