Chart of the Month: Hypothetical Look at the S&P 500 with Tesla

Source: Standard & Poor's
Note: Weights are an estimate based on market cap weights on 11/30/2020

Market Observations

The S&P 500 Index will be adding Tesla as a component in late-December 2020. Based on Tesla’s market cap at the close of November 30, the stock is estimated to comprise approximately 2% of the Index’s market cap. Ordinarily, a company is added over a single trading day. However, S&P is considering adding the stock over the course of two trading days to smooth volatility, since the company is so large. The addition of Tesla to the S&P 500 will mean index fund managers, as well as many active fund managers, will need to acquire shares of the company. There are concerns this could cause a temporary run-up and subsequent sharp decline in share price. However, the diverse nature of the Index will mitigate some of this potential volatility for investors.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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