Amid a soaring stock price and investor excitement, Tesla is about to join the S&P 500 index.
Headed up by Elon Musk, the electric car company is expected to join the index ahead of trading on Monday, December 21. The index, managed by S&P Dow Jones Indices, is a list of 500 large publicly-traded companies in the United States. The move was announced on November 16.
It's a sign of Tesla's strength in the marketplace after a year of skyrocketing value. Over the past 12 months, the company's total stock market value — or market cap — soared from $71 billion to nearly $600 billion.
But what does joining the index mean for Tesla? Ross Gerber, co-founder and CEO of investment management firm Gerber Kawasaki, tells Inverse it is a “validation of Tesla’s success.” It also shows how the company is “one of the most critically important... in America.”
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As encouraging as the news is, it doesn't necessarily mean Tesla's stock price will react well to the news. Gerber describes the jump to the S&P 500 as “baked in” and a “sell the news” event — a reference to the old adage that traders should “buy the rumor, sell the news.”
Not everyone is convinced it's a "sell the news" event. Brad Gastwirth, chief technology strategist at Wedbush Securities, tells Inverse one factor could influence the price.
“More and more has been priced in since the announcement,” Gastwirth says. He points out index funds tracking the S&P 500 still need to add Tesla to their portfolio. Because of that, he believes: “I don’t think we’re over yet.”
Inclusion in the S&P 500 also requires a company to report a cumulative profit over four consecutive quarters. Tesla met the criteria this summer. On November 30, S&P Dow Jones Indices announced that the company would join the index all at once, instead of in stages, as had been previously suggested.
Tesla will replace Apartment Investment and Management Co. While it's a positive step in response to recent financial success, Tesla's technological future also looks bright, with plans to produce vehicles and batteries at high speed over the next 12 months.
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