Yesterday, it was announced that Tesla, one of the biggest companies in the world and the largest electric car manufacturer, would join the S&P 500 index. This news is awesome for long term investors, it adds a level of security to their investments in the future, but what does it really mean?
First of all, what is the S&P 500 index.This is a large group of 500 large publicly traded companies in the United States based on market cap. It is not a precise list of the top 500 companies that are the most valuable, because there are other indicators as to what companies can be in this index. The S&P 500 serves as a benchmark or equity barometer for investors to examine and use to make their decisions in the stock market. There are other similar indexes used by investors such as Dow Jones.
Tesla did pass this benchmark to join the S&P however it did score below average and the electric car maker might have to join in sections. Nevertheless, with the inclusion of the TSLA stock in the S&P 500, Tesla will be placed into the portfolios of innumerable managed funds and will provide a clear outlook for Tesla’s shareholders. Based on the market cap of Tesla on Tuesday, if it were to join on this day, it would join at a valuation of about $420 billion which is the ninth largest company in the index by market cap.
The joining will take place on December 21st before the trading day begins, as said before in portions of two possible due to its large size and market cap. Tesla would be one of the richest additions in the past decade. Tesla shares would sum up to about 1% of the index and the S&P funds indexed would have to be sold for a value of about $50 billion in order to make room for Tesla.
2020 has been a year not to forget with all of the tragedies and an immense number of people dying from disease, the stock market has also had a historic year. March 16, 2020 will go down as one of the worst days for investors in the US as the stock market fell with the news of a “lockdown”. Regardless, Tesla has had a great year with the stock starting the year at about $280-300 until it went on a tear in the summer and had a split at the end of August. Overall this year Tesla has been on the rise, up almost 500% this year. Though many have warned against it, investors think Tesla will nose dive soon, something we have yet to see with the monumental climb Tesla is making.