Tesla’s Entry into S&P 500 May Increase Index Volatility: Analysts

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Tesla (TSLA) is expected to enter the S&P 500 later this month, and the electric vehicle (EV) manufacturer has been having an incredible year. However, some analysts have expressed concerns over the company’s entry into the index, suggesting that it may not be as smooth sailing as it seems.

Investors are gearing up for how Tesla’s entry into the S&P 500 is going to go, as the company’s immense amount of market capitalization will force owners of the full index to make extra room for Tesla, as reported by CNBC.

Additionally, the stock is considered volatile from a stock standpoint, so its inclusion could increase price fluctuation for other companies included in the index.

According to Peter Boockvar, chief investment strategist at Bleakley Advisory Group, other stocks will directly be affected by the move.

Boockvar said, “Because the market cap is so enormous and the amount of dollars that are going to be needed to buy for the index people is so large, there’s a lot of stock for sale in the other 499 names of the S&P.”

He continued, “It’s probably going to be one of the biggest market on close buy orders of all time. I think the weighting is going to be 1.5% at the current market cap. The name it is replacing, you assume, has a lower allocation. Therefore Tesla has to take from the other 499, a little piece from each.”

Whatever Tesla’s entry into the S&P 500 spells for investors and other companies, the excitement will begin on December 18, when investors will likely start trading in preparation for the following Monday’s inclusion. Ultimately, Tesla’s Friday closing price will represent its price entering into the index.

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