Tesla Shares Slump 16 Percent Following Index Rejection – E24

It emerged on Saturday that the S&P 500 ruined Tesla when they updated the index with new companies. In advance, there were high expectations that the electric car company would get a spot on the list, which will primarily include the largest US companies.

Expectations that Tesla will be listed have been seen as one of the reasons stocks have skyrocketed in recent weeks. In the last month alone, participation increased more than 30 percent.

The stock surge ahead of the S&P 500 update is because investors hope to be able to sell to index-tracking funds and therefore would automatically buy Tesla shares, believes analyst Ben Kallo at Baird, according to Bloomberg .

Falling 16 percent

But after three days of inactivity on Wall Street due to Labor Day in the US, Wall Street opens Tuesday with a Tesla stock in the red. The stock is down 16 percent from the start.

On Friday night, Tesla stock fell more than 7 percent after-sales after the news broke.

Tesla shares fell ahead of Wall Street trading throughout the morning of Tuesday. The drop increased after it emerged that General Motors would become Nikola’s main owner. Nikola, which makes hydrogen electric trucks, was up 31 percent from the start on Wall Street.

This is what Wall Street indices look like during business hours:

• Nasdaq Composite down 3.65 percent
• S&P 500 down 2.10 percent
• The Dow Jones is down 1.40 percent

Shares of Tesla were up 400 percent this year when Wall Street closed on Friday. That makes it the company with the largest share rise on the Nasdaq 100 index this year after video conferencing company Zoom, according to Bloomberg.

With Tuesday’s drop, the share continues to climb more than 300 percent for the year.

Smaller companies got a spot

The S&P Dow Jones Indices Committee discards and accepts new companies in the S&P 500 each quarter.

The player from the Etsy network was included in the index in this round, along with technology companies Teradyne and Catalent. These will be included in the index on September 21.

Each of these companies has a market value of around $ 13 billion.

Before today’s recession, Tesla, on the other hand, had a market value of nearly $ 390 billion. That’s almost as much as the Johnson & Johnson pharmaceutical company, the eighth largest in the S&P 500.

Shares of Etsy rose 3 percent before trading Tuesday morning, but fell 1.66 percent from the start on Wall Street.

Teradyne was down 2.66 percent and Catalent 2.76 percent in the opening minutes.

Requirements met for profit

To join the S&P 500 index, the company must be based in the United States, have a market value of at least $ 8.2 billion, have high liquidity, and have at least half of its shares available to the public.

The company should also be able to report positive earnings overall for four consecutive quarters.

Tesla’s second-quarter report showed a net profit of $ 104 million. The company then made a profit for the fourth consecutive quarter and was therefore approved for admission to the S&P 500.

Although Tesla could have been included in the index, the committee evaluates both quantitative and qualitative evaluations. This means that even if a company strictly meets the requirements, it is not guaranteed admission to the index.

Also, index funds would have had to buy a portion of the stock if Tesla had been included in the S&P 500, writes CNBC. The funds weight their investments in an index based on the size of the company and had to enter Tesla largely due to the high market value.