Tesla to join S&P 500; stock leaps by 11% overnight

Andrew Cummings
November 18, 2020

It is likely that the move will massively expand demand for Tesla's already hot shares, as index-driven buyers are forced to automatically purchase their shares.

Up about 450 percent in 2020, Tesla has become the most valuable auto company in the world, by far, despite production that is a fraction of rivals such as Toyota Motor Corp., Volkswagen and General Motors.

S&P DJI said on Monday the addition would require the funds tracking the index to sell about US$51 billion worth of shares from their current holdings to buy Tesla shares and rebalance their portfolios in line with the index.

"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", S&P asked investors. Yahoo's market capitalization at the time was only $56 billion.

"(Tesla) will be one of the largest weight additions to the S&P 500 in the last decade, and consequently will generate one of the largest funding trades in S&P 500 history", S&P Dow Jones Indices said. In fact, investors were surprised that Tesla wasn't tapped for inclusion in September after it met the requirement of posting four consecutive quarters of profit.

Wall Street stocks retreated from records early Tuesday following disappointing retail sales, while drugstore shares were hammered by Amazon's announcement about an online pharmacy.

"I believe in letting the dust settle for a few days and see how things pan out in terms of how much tracker money has gone behind this".

Other reports by iNewsToday