Tesla shares surge on S&P 500 entry
Tesla shares went on a wild ride in the f inal hour of trading on Friday before closing at another record high, as investors scrambled to obtain the shares ahead of the company’s inclusion in the Standard & Poor’s 500 index.
The elevation of Elon Musk’s electric car maker to the premier U. S. stock market index had been expected to prompt a heavy volume of trading, but the price swings still caught some investors off guard.
The stock dropped as much as 4.2% before surging to settle up 6% at a new closing high of $ 695, giving the carmaker a market capitalization of $ 658 billion. More than 200 million shares in Tesla, worth more than $ 148 billion, were traded through the day, including 69 million shares in the closing auction at $ 695.
“It was a wild end of the day,” said Robert Verderese, head of cash trading at Virtu Financial. The trading f irm was able to process f lows and maintain execution quality while share price was f luctuating, he said.
Tesla enters the S& P 500 as the sixth- largest company, after Apple, Microsoft, Amazon, Alphabet and Facebook, its shares having climbed 730% since the start of the year.
The stock is up 70% since mid- November, when S& P Dow Jones Indices announced the company would be joining the bluechip benchmark. That latest leg of its bull run reflected investors and market makers hoping to sell to S& P 500 tracker funds that needed the stock on Friday.
In after- hours trading, the stock fell 2.6%.
Rob Arnott and analysts at Research Affiliates said the inclusion of Tesla illustrates why “traditional capweighted indices, such as the S& P 500, are structured to buy high and sell low — and Tesla is a prime example of this maxim.”
Once added to the S& P 500, “history indicates it is likely to underperform the market in the year after entry,” they said.
Apartment Investment and Management, the real estate business that is leaving the S& P 500 to make room for Tesla, “is likely to outperform the index over the next year by as much as 20%,” Research Associates said, based on the average performance of companies that left the S& P 500 between 1987 and 2017.