stock is rising ahead of a very big day for the stock. Tesla will join the
on Monday and its stock price at the end of trading on Friday will determine the weighting Tesla will have in the index.
The S&P 500 is weighted by market capitalization, adjusted for the number of shares available for trading, which for Tesla (ticker: TSLA) is roughly 80%. The rest is held by insiders, including CEO Elon Musk.
Tesla’s current market value is roughly $610 billion. About $490 billion of that is available to trade. And the total market value of the S&P 500 is roughly $32 trillion.
All those numbers work out to about a 1.5% weighting for the Tesla in the index. Tesla is already the most valuable company ever added. At a weighting of 1.5%, it might also become the largest weighting ever added. That title is held by
(BRK.B). Its original weighting in the S&P 500 was roughly 1.4%. Berkshire was added in 2010.
Adding big companies is complicated. The S&P actually considered adding Tesla in two actions—at a smaller weighting, then a full weighting—to help smooth out the impact. But after soliciting responses from fund managers, it decided against it.
The trading impact has been significant. Shares are up about 58% since Nov. 16, when the decision was made by the S&P index committee to include Tesla. The S&P and
Dow Jones Industrial Average,
for comparison, are up only 3% and 1%, respectively, since then.
Barron’s suggested a 60% gain was too much when speculation initially raged about Tesla’s S&P 500 inclusion, after the company reported a second-quarter profit. We were wrong. Shares have soared more than many pundits expected.
Part of the reason for our skepticism was Tesla’s meteoric rise this year. Shares are up 673% year to date, making it the world’s most valuable auto maker by a wide margin.
(TM) is second with a market capitalization of roughly $250 billion.
Between $5 trillion and $6 trillion are invested in funds indexed to the S&P 500. Those funds start buying Telsa shares on Monday, and they have about 120 million shares to buy. Tesla has traded an average of about 45 million shares a day over the past few days.
There is the potential for a post-index buying drop. How big that might be, just like the pre-index rise, is anyone’s guess.
Tesla shares were up 4.1% to $648 a share late Thursday afternoon. Indexation is likely the dominant factor, but Barclays analyst Brian Johnson took his price target up 84% to $230 from $125. That’s a big increase, but still a long way from $648. Johnson, though, rates shares Sell.
Corrections & amplifications: The market capitalization of the S&P 500 is roughly $32 trillion. An earlier version incorrectly said $3.2 trillion.
Write to Al Root at firstname.lastname@example.org