Tesla is joining the S&P 500 Club — we're looking at what it means for investors
Elon time coming... Tesla will join the S&P 500 index on December 21st, after posting five consecutive profitable quarters. Tesla became eligible to join the famous index in July, after notching four straight profitable quarters for the first time in its 17-year history.
- The S&P 500 tracks the stocks of the 500 most valuable US public companies. People use it as an indicator for how the overall market is doing and can invest in S&P-tracking funds.
- Tesla's set to become the most valuable company to ever join, and will likely be the 7th largest S&P company by market value, right above Walmart (whoa).
Welcome to Club 500... Over $11T is invested in mutual funds and ETFs that track the S&P 500. These funds are kind of like investment "smoothies," made up of a blend of different stocks instead of fruit (though Apple works both ways). Fund managers will now have to buy Tesla stock for their S&P smoothie, so shares have jumped 19% on the news. But these joining rallies (if they even happen) don't necessarily last long.
Tesla could shake up the S&P... The bigger a company's market value, the more weight it carries in the Club. That's why Apple, Microsoft, Amazon, Google, and Facebook make up a whopping ~26% of the index. Tesla's market value is double Toyota's, even though Toyota delivered 30X more cars last year. Some analysts point to Tesla's profit-streak and record 140K deliveries last quarter as signs of maturity. But skeptics say the historically volatile stock could bring risk to the entire index.