Tesla Shares Slide on the first day of trading in the S&P 500

Tesla shares Inc.

TSLA -4.69%

fell on Monday in the debut of the S&P 500, as the massive wave of demand that propelled the stock before its inclusion fell.

Shares of the electric car maker fell 5.1 percent in morning transactions, suggesting some investors cashed in after the addition of Tesla to the S&P 500. contributed less than one-tenth of a percentage point to the S&P 500 slide of 1.2%.

The desert also coincided with larger declines in the stock market, as investors grew nervous about the worsening coronavirus cases in the UK and stricter lock-in measures. The worsening of the cases has served as a wake-up call for many, after enthusiasm for coronavirus vaccinations pushed stocks to record in recent weeks.


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For Tesla investors, Monday’s slide was a little deep in what was another successful year of gains. Shares of Palo Alto, Calif., Rose 687 percent this year and set a record on Friday, creating dozens of millionaires who bet heavily on the company and its charismatic and sometimes controversial CEO, Elon Musk. A significant portion of those gains came after the S&P Dow Jones Indices last month said it would add Tesla to the benchmark, with Tesla up nearly 6% on Friday alone.

But the picture is different for indexed investors, who on Monday suddenly woke up owning a piece of the world’s most valuable carmaker. Investors in the SPDR S&P 500 Trust, one of the largest to follow the benchmark, and other ETFs following indices and mutual funds that missed the Tesla rally, are now feeling the impact of the carmaker on Monday.

Tesla entered the S&P 500 with a share of 1.7%, only lower than Facebook Inc.

and larger than Berkshire Hathaway Inc.,

according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. For every $ 11.11 move in Tesla shares, the S&P 500 fluctuates by one point.

Going further, Tesla’s wild moves will also influence the S&P 500. Tesla has been much more volatile than the S&P 500 this year. Goldman Sachs Group Inc.

analysts recently estimated that adding Tesla to the S&P 500 could add about a quarter of a point to the Cboe Volatility Index or VIX, the indicator based on market turbulence options. Traders said that this inclusion could also enter the derivatives markets for both Tesla and the S&P 500.

More about Tesla and the S&P 500 Index

On Monday, the spread jumped by about 5 points on early trading to 26.87, on the road to closing at the highest level since early November, as major US indices fell.

Even backed Tesla investors, who are optimistic about the company’s long-term outlook, said they were preparing for a drop in the company’s share price after the inclusion of the S&P 500 when the initial concentrated explosion of demand from passive investors calmed down.

Investors refused Tesla – and there are many – went even further. Several investors and analysts have expressed concern that Tesla has shown some classic signs of a bubble with the potential to explode. Some have also made comparisons with Yahoo Inc., an Internet company whose market value peaked less than a month after joining the S&P 500 in December 1999.

“These two cases represent the environment at the time,” said Michael O’Rourke, chief market strategist at JonesTrading. “There is a lot of money going on a lot of companies yet to be proven. This is certainly the definition of a speculative frenzy. “

Index tracking funds bought Tesla shares worth about $ 90 billion by the end of Friday’s session, Mr Silverblatt said, and reduced their positions in smaller shares in the index by an equivalent amount. A major concern at Friday’s session was whether indexed funds will be able to buy the right amount of shares at the closing price to ensure they reflect the composition of the S&P 500. Funds that failed to record the mismatch as a tracking error.

For two of the largest S&P 500 tracking ETFs, this doesn’t seem to be a problem.

The SPDR S&P 500 Trust Fund, the world’s largest $ 318.4 billion ETF, had about the same share for Tesla as Friday’s S&P 500, as did the iShares Core S&P 500 ETF, which has assets of $ 237.7 billion.

Elon Musk’s optimism and affinity for grandiose statements that may have diminished his credibility may have helped him now become the second richest person in the world. The WSJ takes a look at how it managed to succeed in the midst of the pandemic. Photo: Britta Pedersen / Zuma Press

Write to Michael Wursthorn to [email protected] and Gunjan Banerji to [email protected]

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