Facebook Just Got 4 Times More Important

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Yesterday afternoon, the annual ritual known as the Russell Reconstitution began. Yet while plenty of attention goes to the small-cap stocks at the bottom end of the popular Russell 2000 Index (RUSSELLINDICES: ^RUT  ) , the rebalancing also has an impact on several large-cap stocks. And while most of those big stocks are already in the more widely followed S&P 500 (SNPINDEX: ^GSPC  ) , the stock with arguably the biggest benefit from the Russell Reconstitution is Facebook (NASDAQ: FB  ) -- which isn't even in the S&P 500, at least for now.

Why Facebook matters so much more now
Every year, Russell Investments makes adjustments to its key index products, including the small-cap Russell 2000 and the broader Russell 3000, which includes 1,000 large-cap stocks as well as the 2,000 stocks in the small-cap benchmark. For companies that have never belonged to the Russell indexes before, the ritual can be a rite of passage, as growing companies have their success acknowledged while those in decline slip back into the realm of the microcap stocks.

But another key to the Russell Reconstitution has to do with the weightings that each stock within the index gets. Russell uses market capitalization as a primary weighting factor, but it makes adjustments for shares that aren't part of the public float of tradable stock.

In Facebook's case, when the stock became part of the Russell 3000 index last year, its float-adjusted available market capitalization was just $10.2 billion. Now, though, with several expirations of previously locked-up shares and some insider sales of stock, the available market-cap figure has risen to $41.5 billion, more than quadrupling Facebook's influence within the index.

Other big changes in the Russell
Of course, stock movements can make big impacts on the weightings of stocks within the index. Apple (NASDAQ: AAPL  ) is slated to remain the largest company in the Russell 3000, although its market cap is now more than 20% lower than it was at reconstitution-time last year. Moving in the other direction is Google (NASDAQ: GOOGL  ) , which has gained more than 50% since the end of May 2012 and is currently slated to claim the No. 4 spot in the index.

When you add together the performance of all the stocks in the Russell 3000, you get a good reflection of just how strong a year it was for the stock market. Total market cap should rise from $15.8 trillion last year to $19.7 trillion this year, an almost 25% jump that is in line with the 28% gain for the Russell 3000 Index over the past year.

Keep your eyes open
The figures announced Friday are only preliminary, with the final rebalancing taking place in two weeks. Barring a major market move, though, the general takeaway from this year's reconstitution is that the stock market has done well -- and that Facebook is continuing to gain in influence as time passes.

After the world's most-hyped IPO turned out to be a dud, many investors don't even want to think about shares of Facebook. But there are things every investor needs to know about this revolutionary company. The Motley Fool's newest premium research report shows that there's a lot more to Facebook than meets the eye. Read up on whether there is anything to "like" about it today to determine if Facebook deserves a place in your portfolio. Access your report by clicking here.

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