Electric vehicle maker Tesla is expected to enter the S&P on Monday in what will be the largest rebalancing in the history of the index, reports CNBC. Investors are now concerned that the trading volume could result in wild action when the trading action happens at the close on Friday.
- Index Rebalancing
- S&P estimates that approximately 129.9 million shares of Tesla will need to be purchased to add to the S&P 500
- At the current market price of $655, S&P 500 indexers would need to buy $85.2 billion of Tesla stock at the close on Friday.
- Billions more Tesla shares will need to be bought by “closet indexers” that do not officially pay S&P but track the index, at a projected price of 50%-100% above the official $85.2 billion.
- Even at the lower 50% estimate, Tesla’s share sale would dislodge the prior record of $50.8 billion in September 2018 to become the largest rebalancing in the history of the S&P.
- How Tesla Will Change S&P
- Tesla will rank 7th largest among S&P 500 peers with a weighting of 1.52%
- Like other mega-cap stocks, Tesla will not move S&P 500 much since for every $11.11 Tesla moves, the S&P 500 will shift 1 point.
- What Investors Should Watch
- There is a potential for massive market imbalances in close because Tesla is the biggest stock entry ever.
- Volatile markets are likely on close, particularly with many retail traders involved in stock options that could swing in and out of money.
- After Tesla’s add, the sheer volume of trading could cause glitches since most of it will be concentrated in the few minutes toward the close.
- Tesla’s Price and What Happens Next
- Tesla’s stock is added to S&P when its stock has gained 600% this year, presenting a problem to passive investors potentially buying it at stupendously high prices.
- Stocks added to S&P tend to underperform, and those deleted outperform, and analysts see a likely reversal in Tesla’s price on December 21-22
Tesla’s stock is currently gaining. TSLA: NASDAQ is up 0.32%
