Tesla joins the S&P 500 in one fell swoop

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Tesla will enter the S&P 500 next month all at once, reflecting confidence that Wall Street traders will be able to handle a record arrival in the index followed by trillions of dollars in passive investment funds.

The S&P Dow Jones Indices announced the move late Monday, after previously considering spreading the electric car maker’s introduction to the blue-chip US stock index.

Tesla’s inclusion is the largest on record and will give the company one of the biggest weightings in the S&P 500, prompting the index provider to ask market participants this month if the addition is expected to go through. produce in two stages.

In a statement issued Monday, the index said “it will add Tesla to the S&P 500 to its floating-weighted market capitalization weight” ahead of the opening of trading on Monday, December 21st.

“In its decision, S&P DJI took into account the wide range of responses received, as well as, among other factors, Tesla’s expected liquidity and the market’s ability to accommodate large trading volumes on that date.”

Wall Street estimates project up to $ 100 billion in demand for Tesla shares from the exchange funds and fund managers that track it and use the S&P 500 as a benchmark for performance. In total, $ 11.2 billion in investment fund assets are tied to the S&P 500.

Howard Silverblatt, senior index analyst at S&P DJI, said that “the automaker’s current (float-adjusted) market value of $ 437 billion would yield $ 72.7 billion in required trades, in addition to trades. normal rebalancing ”on the day of its inclusion.

That would eclipse the normal activity required during the S&P 500 reshuffle. The last 20 days of rebalancing have averaged $ 27.1 billion in trades, Silverblatt calculated, with a record $ 50.8 billion set. in September 2018.

Passive investment vehicles such as ETFs are focused on securing their share of Tesla at its closing price on December 18 to minimize a measure known as tracking error. When companies are added or removed from a benchmark, ETFs adjust their holdings in tandem, seeking to mirror the index as closely as possible and at the lowest possible cost.

A number of market makers believe there is enough liquidity to facilitate an orderly rebalancing of the S&P 500 next month despite Tesla’s heavy weight in the market.

Shares of the automaker jumped 40% in the two weeks following the announcement of S&P DJI’s addition to the S&P 500, setting an intraday high of $ 607.80 early Monday before closing in on 565, $ 74.

This year, Tesla has gained 600%, giving it a market cap of $ 535 billion, after consolidating founder Elon Musk’s efforts to bring electric vehicles into the mainstream and dramatically improve its underlying financial performance.

After the market closes on December 11, S&P DJI will announce the name of the company replaced by Tesla.

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