Ding, dong, the witches are back.

Tomorrow is that quarterly event known as “quadruple witching” – when futures and options on indexes and individual stocks expire – generally resulting in one of the biggest trading days of the year.

The anticipated spike in turbulence will hit a market already roiled by rising trade tensions between the U.S. and China. The S&P 500 has swung 0.5 percent a day this week, almost double the average in the previous month. 

However, tomorrow brings a potentially even greater chaos-inducing event which is the constituent re-classification in the S&P which, according to Goldman, “represents a major risk to the Tech sector.”

“It’s a huge day,” Art Hogan, chief market strategist at B Riley FBR Inc., said by phone.

“We do have the potential for a pretty volatility day with the combination of quadruple witching, which only happens four times a year, and an almost once in a lifetime change in S&P 500 GICS.”

This is the largest revision to the Global Industry Classification Standard since 1999.

Some history: “in September, the major index providers MSCI and Standard & Poor’s will re-categorize components of the global equity markets. Using the S&P 500 index as an example, five current constituents (GOOGL, FB, EA, ATVI, TTWO) comprising nearly 20% of the existing Information Technology sector will be re-classified into Communication Services. Following the reclassification, the Information Technology sector weight in the S&P 500 will decline to 20% from 25%.”

The implications: “with two of the largest and fastest-growing companies transitioning out of Information Technology, the sector will lose some of its appeal to growth investors. The future “legacy” Tech (i.e., firms remaining in the sector) will have much slower expected sales and earnings growth and lower margins than both the current Tech sector and the new Communication Services sector, which will also  include Telecom and select Consumer Discretionary stocks (DIS, NFLX, and others).”

Furthermore, Goldman calculates that the future “legacy Tech” sector has expected 2018 and 2019 sales growth of 9% and 5% and margins of 22% and 23%. However, the “legacy” Tech sector trades at a lower valuation (EV/sales of 3.9x and P/E of 17.5x) compared with existing Tech (4.0x, 18.4x), and the remaining stocks in the S&P 500 (1.8x, 16.4x).

The firms at the top of the Info Tech sector will also change. The largest stocks in the “legacy” Tech sector will be AAPL (19% of sector), MSFT (16%), and INTC (5%), each of which has lower earnings growth but lower valuations, a higher shareholder yield, and less regulatory risk than the departing firms.

What does this mean in a market context? Here’s Goldman:

Despite low regulatory risk, many of these “legacy” Tech firms have underperformed alongside FB as stock  correlations have spiked. Our report this week identified Technology stocks that have experienced the largest increase in correlation with FB and have underperformed both the market and their sector, in part due to investor use of macro products such as ETFs and futures. Examples include firms with little regulatory risk such as Buy-rated CSCO, NVDA, and GPN.

The bottom line: once Facebook and Google break away from the legacy positions as sector leaders in the current InfoTech and enter the brand new Communication Services group, what is left over in Information Technology will be a far less glowing example of rapidly growing stocks, which in turn will prompt an unknown number of investors to dump the sector.

Of course, no matter what happens, talking heads do not want you to worry. As Bloomberg reports, while trade-war anxiety and rising Treasury yields have contributed to wider market swings, investors should be careful not to read too much into this week’s move, as volatility tends to go up when fund managers try to adjust positions using new derivatives, said Russ Visch, a technical analyst at BMO Capital Markets in Toronto.

“Our sense is that the price action was exacerbated/amplified by the fact that this week is a ‘quadruple witching’ week and not the beginning of a major swoon in U.S. equities,” Visch wrote in a note to clients earlier this week.

For now, it seems that is the message is one of smooth sailing as VIX tumbles to an 11 handle and professional investors have dumped crash risk protection…

However, traders should buckle up, the last quadruple witching was June 15, and S&P 500 trading volume surged 75 percent to 3.5 billion shares from the previous month, data compiled by Bloomberg showed, and with the reclassification, this one will be bigger still.

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