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Wow, there are so many interesting -- investing and otherwise -- stories right now -- here's another one.
Think about this. A company with a market value greater than Berkshire Hathaway will soon be added to the S&P 500.
Additions and subtractions to the S&P 500 are normally a ho-hum affair.
The 509th biggest company in the U.S. might jump to 497th place, and thus into the index.
Investors who track it buy the one stock and sell another. But no one has ever tried to add Tesla Inc. a $555 billion company prone to huge swings in price.
That’s happening next month, and it’s causing headaches across Wall Street.
To avoid missteps, S&P polled big investors on whether they would prefer adding Tesla’s weight all at once on Dec. 21 or split over two trading days in December—an unprecedented move for S&P.Asset managers and trading desks across Wall Street have held virtual summits to debate the matter.
The vote from many appears to be for the two-day option, partly because of Tesla’s size, along with the potential for elevated volatility in the stock market.
“If we begin to anticipate a worst-case scenario from what could happen from the Thanksgiving holiday, we could expect greater than usual volatility,” said David Mazza, a managing director and head of product at exchange-traded-fund manager Direxion, referring to a possible further surge in coronavirus cases. He endorses Tesla’s addition to the S&P 500 over two separate trading sessions. Tesla’s addition to the index is expected to be particularly challenging because the company will be the largest to ever join, and it is expected to make up at least 1% of the gauge.
At its current value, it would be the sixth-largest company in the S&P 500, just bigger than Berkshire Hathaway Inc. and smaller than Facebook Inc. The stock, which has a cultlike investor base, has surged more than 40% to $585.76 since Nov. 16, when S&P announced its intended inclusion, extending its gains for the year to sevenfold.
The S&P 500 itself is up 13% in 2020.