Electric car maker Tesla has reportedly entered the S&P 500 with a weighting of 1.69 per cent in the benchmark. The company is expected to be the sixth biggest firm in the large-cap index when counting the 2 share classes of Alphabet together.
Upon this announcement, investors, comprising active managers and passive fund managers utilizing the S&P 500 as a benchmark, have reportedly sprinted into Tesla shares in the final run-up, in turn pushing the stock up by approximately 6 per cent on Friday, closing at an all-time high of $695 per share. The session has also witnessed the exchange of more than 200 million Tesla shares, representing more than four times the monthly average trading volume.
As per sources, Tesla’s entry to the S&P 500 is cited as a remarkable addition to the company’s outstanding 2020. The carmaker has reportedly turned in five successive profitable quarters against the augmented demand for electric vehicles. Tesla’s shares hiked over 730% this year, bringing the company’s market capitalization to more than $658 billion. The company’s S&P inclusion is the largest ever and perhaps the most dramatic for the influential stock index.
According to sources, the S&P 500 changes by 1 point for every $11.11 movement of Tesla. Previous speculations by Goldman Sachs state that the total return of S&P 500 would have been lifted by 2 percentage points if Tesla would have been a constituent throughout the year. The index is up by 14.8 per cent so far in 2020.
One of the most expensive firms to ever join the S&P 500, Tesla is trading at 186 times forward earnings. The company’s impact on the valuation of the index has turned out to be much smaller than many had speculated. The price-earnings ratio of S&P 500 is expected to escalate from 22.3 to 22.6 in 2021, asserts Howard Silverblatt, Senior Index Analyst, S&P Dow Jones Indices.