REUTERS: Tesla Inc. shares rose to a record high on Friday on a hectic trading day as investors prepared for the long-awaited entry of the electric vehicle manufacturer into the S&P 500 benchmark.
The company led by billionaire Elon Musk on Monday will become the most valuable ever admitted to the main landmark on Wall Street, representing over 1% of the index. Shares have risen about 70 percent since mid-November, when its S&P 500 debut was announced, and have risen 700 percent by 2020.
Tesla shares reached 6 percent to a record $ 695.
The addition of Tesla to the S&P 500 forces index tracking funds to buy shares worth about $ 85 billion by the end of Friday’s session, so that their portfolios reflect the index, according to the S&P Dow Jones Indices. These funds must simultaneously sell shares of other S&P 500 constituents worth the same amount.
Shares fluctuated between gains and losses at the end of the session before the price and volume increased near the end of trading.
The move was probably a last-minute buyout in preparation for its addition to the S&P 500, said Dennis Dick, owner trader at Bright Trading in Las Vegas.
Tesla’s shares exceeded US $ 120 billion shortly after 16:00 EST (2100 GMT), with a volume exceeding 200 million as stock traded after hours, according to Refinitiv data. The trading volume for Tesla has averaged 53 million shares in the last 10 sessions.
“This kind of volume is kind of crazy,” Randy Frederick, vice president of trading and derivatives for Charles Schwab of Austin, Texas, said Friday’s action.
Tesla shares fell in trading after hours, down 3%.
The inclusion of Tesla could be a double-edged sword for index-seekers, who buy their volatile shares after this year’s massive completion.
“Index-based funds will pay a higher price than those who bought the shares on the date of the announcement of the entry date, but will benefit because the fund better represents the high-capitalized universe in the US,” said Todd Rosenbluth, head of the ETF and fund. mutual research at CFRA. “Tesla’s absence from the flagship index was notable in 2020.”
Some strategists expect Tesla’s inclusion to go through the S&P 500 itself. Tesla is a “volatile stock,” said Lindsey Bell, chief investment strategist at Ally Invest, moving an average of 4.1% a day in 2020.
However, others say the addition of Tesla is unlikely to exacerbate turns in the broader index. If the stock had been included in the S&P 500 all year, it would have increased the default volatility of the benchmark by only a small amount, according to a study by UBS strategist Stuart Kaiser.
Actively managed funds that compare their performance to the S&P 500, many of which have so far avoided investing in one of the most controversial stocks on Wall Street, will also be forced to decide whether to own Tesla.
“Everyone knew this was coming in two or three weeks, so the real question now is whether it continues to perform better, and if so, what is the catalyst,” said Thomas Hayes, a board member at Great Hill Capital LLC in New York.
Tesla’s stock market growth in California put its market value at about US $ 660 billion, making it the sixth most valuable listed company in the US, with many investors considering it to be overestimated.
Tesla is by far the most traded stock on Wall Street, with $ 18 billion of its shares traded on average each session in the last 12 months, easily surpassing Apple in second place with average daily trades of $ 14 billion. USD, according to Refinitive.
About one-fifth of Tesla’s shares are closely owned by Musk, the chief executive and other insiders. Because the S&P 500 is weighted by the number of shares of companies actually available on the stock market, Tesla’s influence within the benchmark will be slightly diminished compared to its overall value.
(Additional reporting by Shreyashi Sanyal in Bengaluru and April Joyner in New York; Editing by Ira Iosebashvili, Megan Davies, Ana Nicolaci da Costa, Steve Orlofsky, Andrea Ricci, Richard Chang and Tom Brown)