U.S. stock index futures edged lower on Friday, reversing some of the prior session's gains as chip stocks faced selling pressure. The market's focus is squarely on the close, when the annual Russell index reconstitution is expected to force significant portfolio adjustments by fund managers, potentially sparking sharp late-day volatility.
As of 5:29 a.m. ET, Nasdaq 100 futures dropped 1.16%, S&P 500 futures fell 0.53%, and Dow futures slipped 0.11%, according to Reuters. The declines came after a strong Thursday led by Micron Technology, which surged over 15% but gave back 4.8% in premarket trading. Other semiconductor names followed suit: Intel and Advanced Micro Devices each dropped more than 3%, while Nvidia edged down 1.4%.
The Russell index reconstitution, which takes effect after Friday's close, is a major market event. FTSE Russell's preliminary data shows 62 companies joining the Russell 1000 and 237 entering the Russell 2000. For the large-cap index, technology and industrials each contribute 18 additions. Jefferies equity analyst Steven DeSanctis described the event as a potential "really massive trade," while Stephens analyst Melissa Roberts estimated total trading tied to the reconstitution could reach nearly $150 billion, calling it a "key liquidity day."
The reshuffle also impacts mega-cap tech names. Microsoft and Apple will be included in both the Russell 1000 value and growth indexes. Amazon.com shifts further into the value category, while Alphabet and Advanced Micro Devices are classified as 100% growth and are among the largest names exiting the Russell 1000 Value. "These companies have gotten larger. They are the market," said Krishna Chintalapalli, portfolio manager at Parnassus Investments.
Apple shares were little changed early Friday after a more than 6% drop on Thursday. The company recently raised prices on some products due to higher memory and chip costs. Broader weakness in global tech weighed on Asian and European markets. MSCI's Asia ex-Japan index fell 3%, with Korea's KOSPI tumbling up to 9% at one point. Mark Ellis, CIO at Nutshell Asset Management, cited concerns about hyperscalers and "the return on invested capital from all this expenditure."
In a symbolic blow to the AI rally, a report suggested OpenAI may delay its public listing to next year. "This move would be heavy with symbolism," said Danni Hewson, head of financial analysis at AJ Bell, noting that OpenAI kicked off the AI surge with the launch of ChatGPT in 2022.
Inflation data added to the cautious tone. The May PCE price index rose 4.1% year over year, the first time above 4% since last April. Core PCE climbed 3.4%. "PCE price inflation remains too high and will keep the Fed on hold," said Scott Anderson of BMO Capital Markets. Gregory Daco of EY-Parthenon called core inflation "uncomfortably firm" and above the Fed's 2% target.
SpaceX, which recently joined Nasdaq under ticker SPCX, dropped 1.7% in premarket action. The company is expected to be fast-tracked into the Russell index, potentially driving forced inflows. Jefferies estimated passive inflows from Russell inclusion at $2.68 billion. Options markets imply about a 40% chance that SpaceX shares fall below $130 by mid-September.
In M&A news, ON Semiconductor announced it will acquire Synaptics in an all-stock deal valued at $7 billion, the largest in its history. Synaptics shareholders will receive 1.350 shares of Onsemi for each share held, a 19% premium based on the 10-day volume-weighted average close. CEO Hassane El-Khoury said the deal adds a connected-compute platform in key target sectors.
