Tesla Will Join S&P 500 at Full Weight

Marking the Calendar for December 21

A decision has been reached about how Tesla (TSLA) will make its debut on the S&P 500. The electric car company will join the index all at once on Monday, December 21 rather than in piecemeal tranches. For investors, that could lead to a hectic day of trading the Friday before the electric vehicle giant joins the broad-based benchmark.

Tesla shares have climbed by nearly 600% this year, and the company is currently valued at over $550 billion. It’s the sixth largest firm in the US stock market, larger than any other car company. Once it is added, Tesla will account for 1% of the S&P 500.

Factors That Drove the Decision

Because Tesla is so large and its shares tend to trade in a volatile fashion, analysts and investors have worried about how adding the company to the S&P 500 all at once will impact markets. Before deciding how to handle Tesla’s debut on the index, the S&P 500 surveyed investors, portfolio managers, and analysts. Many traders said they recommended adding Tesla to the index in small segments, or tranches. These voices believed that one tranche in December and another in March might have less of an impact on the market overall. However, others felt strongly that the company should be added all at once, and the S&P 500 ultimately decided to bring Tesla on board in one piece.

Decision makers also recognized that on the Friday before Tesla will join the index, options and futures on stocks and indexes will expire at the same time. That happens just once every quarter, and could expand liquidity right before Tesla joins.

Making Room for Tesla

For now, it’s unclear which stock will leave the S&P 500 to make room for Tesla. As its name suggests, the S&P 500 is an index of the United States’ 500 largest publicly traded companies by market capitalization.

There’s a certain amount of mystery surrounding why and when certain companies are added to the S&P 500. Tesla was first eligible in September, but the S&P 500 committee chose to add Etsy (ETSY) and two other, smaller companies during the September rebalance.

Now the wait is almost over, and Tesla will soon become a member of the S&P 500. After markets close on December 11, the index plans to release a decision about which company it will remove in order to leave a spot for the EV giant.

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