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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Hospital Stocks Rise In Tandem With COVID-19 Cases
A Shift in Perspective
During November, hospital stocks surged as COVID-19 cases reached their highest levels since the beginning of the pandemic. Shares of two national operators, Tenet Healthcare Corp (THC) and HCA Healthcare (HCA), rose by over 21% last month. That’s 10% more than the S&P 500’s gains during the same time period.
The spike in the price of hospital stocks is partially because hospital operators are still trading lower than they were at other points during the year. Therefore traders are buying shares of hospitals in anticipation that they will continue to climb. Investors also seem to be gaining confidence in hospitals’ ability to stay afloat even when they are under severe strain as a result of spikes in COVID-19 cases.
Split Congress Drives Stock Stability
Investors now feel more certain about what lies ahead for hospitals after a period of extreme uncertainty related to COVID-19 and the presidential election. For example, Wall Street appears to think that a major overhaul of the Affordable Care Act is unlikely given what is projected to be a split Congress.
Between cost-cutting measures and federal assistance, hospitals have also done their part to reassure investors that they can keep operations running during the pandemic. Non-coronavirus patients have also returned to hospitals for more profitable routine procedures. This has helped hospitals shore up their balance sheets and injected more confidence into the sector.
The positive sentiment in the broader market is encouraging for healthcare investors who hope to see share prices increase in the coming months. However, the future is still foggy for hospital operators. Public health officials are preparing for a spike in COVID-19 cases due to congregations during the Thanksgiving holiday. On Sunday, there were 135,000 new infections in the US. As a result, hospitals saw a record of 93,000 new coronavirus patients. Some have now halted elective surgeries in anticipation of a surge in patients.
Despite these difficulties, analysts say that unless another nationwide lockdown is on the way, they expect hospitals will stay profitable and will outperform the rest of the market heading into next year.
Reddit Releases Daily User Numbers For the First Time
Over 50 Million Users Per Day
October was a big month for Reddit. For the first time, the message board company disclosed its daily user count, the metric many social media platforms use to give investors and advertisers information about their audiences. Reddit says the platform averaged about 52 million active users per day this past October. That number represents a 44% increase from October 2019.
The company’s CEO, Jen Wong, said Reddit shared the daily user metric for the first time in an effort to be “more in-line with industry reporting.” For context, Reddit’s user number reflects one third of the daily users active on Twitter (TWTR), and an even smaller fraction of the audience on Facebook (FB), which averaged 1.82 billion daily active users. “We’re focused on daily usership and increasing this number as we continue to grow our community and scale our advertising business,” Wong added.
Announcement Aimed At Advertisers
After a tumultuous year of ad spending, Reddit appears to be positioning itself for more advertising growth in 2021. During the first quarter of the year, Reddit’s ad revenue growth was up 40% on an annual basis, but that fell to 27% in the second quarter when the coronavirus pandemic forced companies to conserve cash. According to Wong, advertising revenue has had a resurgence in the third quarter, with 83% year-over-year growth.
Part of Reddit’s advertising strategy involves expanding into international markets. This September, Reddit announced it is opening a new office in London. The company also plans to have multiple offices in Europe, the Middle East, and Africa. Before the end of this year, Reddit aims to have 300 people in its international salesforce.
The Future of Reddit
Reddit was founded in 2005, so it’s not quite as “shiny” as newer platforms like Snapchat (SNAP) and TikTok. Wong acknowledges Reddit’s age and says part of her strategy is to show advertisers that Reddit has an important place in the future of the internet.
Ad-buyers say an increasing number of their clients are purchasing space on Reddit and that number is likely to grow. Reddit’s leadership believes that the company’s mission of helping people find community will help remain popular for its existing audience and aid its goals of gaining more users over time.