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REUTERS: Tesla Inc shares rose to an all-time high on Friday on a hectic trading day as investors braced for the electric carmaker’s long-anticipated entry into the benchmark S&P 500 index.
The company headed by billionaire Elon Musk on Monday will become the most valuable ever admitted to Wall Street’s main benchmark index, accounting for more than 1% of the index. The shares have risen 70% since mid-November, when their S&P 500 debut was announced, and have soared 700% so far in 2020.
Tesla shares ended up rising 6% to a record $ 695.
Tesla’s addition to the S&P 500 is forcing index-tracking funds to buy $ 85 billion worth of stocks at the end of Friday’s session so that their portfolios reflect the index, according to S&P Dow Jones Indices. Those funds must simultaneously sell the shares of other components of the S&P 500 for the same value.
The shares ranged between gains and losses at the end of the session before rising in price and volume near the end of trading.
The move was likely the result of last-minute purchases in preparation for joining the S&P 500, said Dennis Dick, owner trader of Bright Trading in Las Vegas.
Turnover in Tesla shares topped $ 120 billion shortly after 4 p.m. EST (2100 GMT), with volume exceeding $ 200 million as the shares traded after hours, according to Refinitiv data. Tesla’s trading volume has averaged 53 million shares in the last 10 sessions.
“That kind of volume is insane,” Randy Frederick, vice president of trading and derivatives at Charles Schwab in Austin, Texas, said of Friday’s action.
Tesla shares fell in after-hours trading, shedding 3%.
The inclusion of Tesla may be a double-edged sword for index trackers, who are buying its volatile stocks after this year’s massive surge.
“Index-based funds will pay a higher price than those that bought the shares when the entry date was announced, but they will benefit as the fund better represents the large-cap universe of the US,” Todd said Rosenbluth, Head of ETF and Mutual Funds. research at CFRA. “The absence of Tesla in the prominent index has been notable in 2020.”
Some strategists expect Tesla’s inclusion to extend into the S&P 500 itself. Tesla is a “volatile stock,” noted Lindsey Bell, chief investment strategist at Ally Invest, moving an average of 4.1 percent per day in 2020.
Others, however, say that the addition of Tesla is unlikely to exacerbate the twists in the broader index. Had the stock been included in the S&P 500 all year, it would have increased implied volatility in the benchmark by only a small amount, according to a study by UBS strategist Stuart Kaiser.
Actively managed funds that compare their performance to that of the S&P 500, many of which have thus far avoided investing in one of Wall Street’s most controversial stocks, will also be forced to decide whether they own Tesla.
“Everyone has known this is going to happen for two to three weeks, so the real question now is whether it continues to outperform and, if so, what is the catalyst,” said Thomas Hayes, Managing Member of Great Hill Capital LLC in New York.
Rising shares of California-based Tesla have put its market value at roughly $ 660 billion, making it the sixth most valuable U.S. company to go public and many investors consider it wildly overvalued.
Tesla is by far the most traded stock by value on Wall Street, with an average value of $ 18 billion of its shares traded in each session for the past 12 months, easily beating Apple, in second place with an average. daily operations of $ 14 billion. according to Refinitiv.
About a fifth of Tesla’s shares are held by Musk, the CEO, and other insiders. Since the S&P 500 is weighted by the number of company stocks actually available on the stock market, Tesla’s influence within the benchmark will decline slightly compared to its overall value.
(Additional reporting by Shreyashi Sanyal in Bengaluru and April Joyner in New York; Editing by Ira Iosebashvili, Megan Davies, Ana Nicolaci da Costa, Steve Orlofsky, Andrea Ricci, Richard Chang and Tom Brown)
