Tesla Inc.’s shares fell on its first day after being added to the S&P 500 Index, as the broader market slid and the stock retraced gains from Friday when tens of millions of shares were purchased by index-fund managers.
At its debut in the S&P 500, Tesla is ranked as the seventh-heaviest weighted stock, representing 1.6% of the index, according to data compiled by Bloomberg.
Shares of the EV maker fell as much as 5.4% in early trading Monday and the S&P 500 slipped 1.2%, following European stocks lower after several major countries moved to suspend travel from the U.K. amid concerns about a new strain of Covid-19.
Tesla has catapulted 731% this year in anticipation of the historic inclusion, making it the biggest company ever to be added to the benchmark, where it will be replacing real estate investment trust Apartment Investment & Management Co. The EV pioneer will also be joining the S&P 100, replacing oil and gas firm Occidental Petroleum Corp., which fell as much as 13% premarket. Apartment Investment dropped 3.3%.
BloombergTraders who spent most of the year pushing up shares of Tesla in anticipation of surging demand from index funds saw its climax Friday, as frantic purchases by passive managers drove the shares up almost 5% as exchanges closed. At the end of the day, Tesla shares closed at an all-time high. More than $150 billion worth of Tesla shares traded on Friday, ahead of the index inclusion.
“There is strong precedence for positive returns for stocks prior to S&P 500 inclusion and post announcement, but very limited precedent for near term out performance post inclusion,” Sanford C. Bernstein analyst Toni Sacconaghi wrote in a note earlier this month.
Market strategists have been divided on how the addition of the famously volatile stock would impact the benchmark gauge. According to Susquehanna quantitative derivative strategist Souhow Yao, the inclusion will have a limited impact on implied volatility, and that if Tesla was added a month ago, volatility for the S&P 500 would have actually decreased.
On the other hand, Interactive Brokers’ Chief Strategist Steve Sosnick said Tesla’s historic volatility suggests daily moves of about 4% up or down, and at its current market value can end up budging the index by about 2 points.
