Tesla (TSLA) is officially going to join the S&P500 and it is sending the stock price on a wild ride in after-hour trading.
After lining up profits in now 5 quarters in a row and seeing its valuation surge to become one of the world’s most valuable company, Tesla was expected to join the S&P500 earlier this year.
The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.
It is basically a representation of the US stock market, and it is often updated to add growing companies in order to better represent the market.
The indice did a reshuffle in September, but Tesla was surprisingly not included.
Now the S&P has announced that Tesla will be included in the next reshuffle coming in December:
“On November 16, 2020, S&P DJI announced that TSLA will be added to the S&P 500 effective prior to
the open of trading on Monday, December 21 to coincide with the December quarterly rebalancing
They didn’t disclose which company is going to by taken out of the indice now that Tesla is being included.
It will be announced closer to the reshuffle.
Tesla’s inclusion is so significant that the S&P is seeing feedback on who it should be handled:
Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback through a
consultation to the investment community to determine if Tesla should be added all at once on the
rebalance effective date or in two separate tranches ending on the rebalance effective date.
The announcement sent Tesla’s stock (TSLA) on a wild ride in after-hour trading.
It went up by as much as 12% – adding over $40 billion in market capitalization to the automaker.
It’s not unusual for a company’s stock price to increase after being included in the S&P500 since funds tracking the index generally buy into it.
Glad that the S&P committee came to its senses.
Even if you think that Tesla’s valuation is 5 times too high, it would still be one of the biggest companies in the US and it would make sense to have it in the S&P500.
Now I don’t know if the stock’s reaction is appropriate to simply being added to the index, but we are only talking about after-hour trading right now.
It’s going to be more interesting to see how the market reacts tomorrow.
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