S&P 500 PRICE FORECAST:
- Tesla set to join the S&P 500 index on 21 December
- Tesla will most likely join one of the largest stocks on the S&P 500 index
- Known for adamant supporters and significant volatility, how will Tesla joining the Index affect the S&P 500 index as well as the stock itself?
S&P 500 INDEX OUTLOOK: HOW THE ADDITIONAL OF TESLA WILL AFFECT THE INDEX?
The S&P Dow Jones Indices announced earlier this week that Tesla would be added to the extensive selection of stocks on 21st December 2020. After recording 4 consecutive profitability quarters months ago, Tesla has fully met the criterion for inclusion in the S&P 500 ever since. So, some Tesla fans and stockholders had started questioning the delay.
Although the S&P 500 index is the most popular benchmark for traders and investors, especially in a passive investing arena, the money for curators has some preference with regards to when stocks would be added over the rigid specifications. Without any direct reasoning from index curators, it’s like the delay might have been observing stock volatility as some analysts believe it swelled into the bubble or to start planning the inclusion.
Possessing a market capitalization of over $460 billion, Tesla would be one of the largest single stock additions to the S&P 500 index in their history and it has a volatile track record. Technically, the stock will give rise to increased volatility for the broadest index. On the other hand, the weighting on the S&P 500 index would most likely rest at about 1.4% considering the market prices as CAC 40, DAX 30 Technical Outlook: Rally Holding Well So Far.
Moreover, there is enough evidence to propose making it into a prestigious S&P 500 index could hurt the performance of the stock due to the increase in the passive holders considering the rise to less active shareholders that resulted in an array of other challenges. Without necessarily getting into the length details of the research, it’s like there is some consideration that would be made when estimating Tesla’s share price pattern after it joins the S&P 500 index.
Overall, because of the largely passive outlook of trading in the S&P 500 index, the inclusion of Tesla into this index might make Tesla less volatile. As institutions and funds crowd to gain more exposure to Tesla to track this index. Long-term believers and retail investors might take this chance to minimize their holdings knowing very well that the pool of traders has grown.