The looming reconstitution of Russell indexes may see GameStop (GME) graduate to the Russell 1000 large-cap index, unlike AMC Entertainment (AMC). AMC stock jumped.
Every year in June, FTSE Russell rebalances its family of U.S. stock indexes, which serve as benchmarks for roughly $10.6 trillion in investor assets. In general, stocks with a market capitalization greater than the 1,000th-ranked company — or $5.2 billion this year as of the May 7 cutoff date — will be included in the large-cap Russell 1000 index. Stocks below the 1000th-ranked stock qualify for the Russell 2000 small-stock index.
According to a Goldman Sachs analysis, 57 stocks could potentially enter the Russell 1000 benchmark, including Reddit-favorite GameStop, one of 34 stocks moving up from the Russell 2000 index. But AMC Entertainment may not. As of May 7, GameStop had an $11 billion market value and AMC Entertainment $4.3 billion.
Also, Clover Health (CLOV), a new Reddit stock, could be added to the Russell 2000 index for the first time, Goldman Sachs said.
On June 4, FTSE Russell published a preliminary list of planned additions and deletions to the Russell 3000 index. The final lists, with breakouts for the Russell 1000, the Russell 2000 and the Russell Midcap index, are due June 25.
But the intervening weeks are fraught with risk for fund investors. Index providers tend to buy and sell those stocks after the market’s close on June 25 to keep their fund’s performance in line with the indexes.
Anticipating fund manager’s moves, traders also buy or sell the same stocks in the run-up to the annual Russell rebalancing. That in turn forces index funds to buy shares whose prices have been driven up, and sell shares that have already fallen.
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AMC Stock, GameStop Stock
Shares of AMC Entertainment surged 14.8% to close at 55.00 on the stock market today. AMC stock remains far extended from a 14.64 buy point, meaning shares are not in buy range. GameStop stock rallied 12.7%.
Among other so-called meme stocks or Reddit stocks, Bed Bath & Beyond (BBBY) climbed 7.2%, Workhorse (WKHS) added 6.8%, and Koss (KOSS) pared gains sharply to finish just 2.4% higher.
Meme stocks have taken investors on a wild ride. AMC stock has shot up more than 2,000% so far this year, and GameStock stock has soared more than 1,000%.
Despite the surge, most meme stocks don’t fit IBD’s CAN SLIM investing strategy. Most of the companies have weak fundamentals with difficult and uncertain prospects. Aggressive traders can attempt to buy these meme stocks based on technicals alone as they break out of consolidations. But most are greatly extended with extreme volatility.
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