Tesla jumps $40bn in value ahead of S&P 500 listing
The electric car company is due to join the index in December and if the pre-market gains hold, Tesla’s value will top $440bn
Bengaluru/San Francisco — Shares of Tesla rose 11% before the bell on Tuesday, adding about $40bn to the value of the electric vehicle (EV) maker and giving another boost to the fortune of billionaire CEO Elon Musk.
S&P Dow Jones indices confirmed, after markets closed on Monday, that they would add the company to Wall Street’s main index from December 21, firing the starting gun on a major reorganisation of investment funds that track the basket of stocks.
At $400bn, Tesla’s market capitalisation is a hundred times that of the S&P’s smaller companies, according to Refinitiv data, potentially making it the biggest ever addition to the index.
The S&P Dow Jones indices said the addition of the company would require investment funds indexed to the S&P 500 to sell about $51bn worth of shares of current member companies so that their portfolios correctly reflect the index.
“Potentially one of the pushbacks on adding Tesla to the S&P was the elevated stock price,” Credit Suisse analyst Dan Levy wrote in a note. “The stock’s recent pullback provides better opportunity for index trackers to build positions.”
Bolstered by a decade of stock market gains, the combined market capitalisation of the S&P 500 now totals close to $32-trillion, and S&P Dow Jones indices data at the start of 2020 showed investments indexed to it reached $4.6-trillion.
If the pre-market gains hold, Tesla’s own value will top $440bn, more than the S&P gained on Monday after news emerged of successful Covid-19 vaccine trial data from Moderna.
The run in to Tesla’s addition in December may see more speculative buying.
In 1999, Yahoo surged 64% in five trading days between the announcement that it would be added to the index and its inclusion. Yahoo’s market capitalisation at the time was only $56bn.
“The 12% move is probably a short squeeze more than anything else,” said Mark Taylor, sales trader at Mirabaud Securities, London. “I believe in letting the dust settle for a few days and see how things pan out in terms of how much tracker money has gone behind this.”
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