REUTERS: Shares of Tesla Inc. hit a record high on Friday on a frantic trading day as investors prepared for the electric vehicle maker’s long-awaited entry into the S&P 500 benchmark.
The company led on Monday by billionaire Elon Musk will become the most valuable admitted to the main benchmark on Wall Street this Monday, with more than 1% of the index. Shares have risen about 70 percent since mid-November, when their S&P 500 debut was announced, and have risen 700 percent through 2020.
Shares of Tesla ended up 6 percent, with a record $ 695.
Tesla’s addition to the S&P 500 forces index-tracking funds to buy shares worth about $ 85 billion at the end of Friday’s session, so its portfolios reflect the index, according to S&P Dow Jones Indices. These funds must simultaneously sell shares of other components of the S&P 500 for the same amount.
Shares fluctuated between gains and losses at the end of the session before rising in price and volume near the end of trading.
The move was likely the result of the last-minute purchase in preparation for its incorporation into the S&P 500, said Dennis Dick, a trader who owns Bright Trading in Las Vegas.
The turnover of Tesla shares exceeded 120 billion US dollars shortly after 4 pm EST (2100 GMT), with a volume of more than 200 million depending on the value of shares traded after hours, according to Refinitiv data. Tesla’s trading volume has averaged 53 million shares over the last 10 sessions.
“That kind of volume is a little crazy,” Randy Frederick, vice president of trading and derivatives at Charles Schwab in Austin, Texas, said on Friday’s stock.
Tesla shares fell in trading after hours, with a 3% drop.
The inclusion of Tesla may be a double-edged sword for index trackers, who buy their volatile stocks after this year’s massive phase.
“Index-based funds will pay a higher price than those who bought the shares when the entry date was announced, but will benefit as the fund better represents the large-cap universe of the United States,” he said. Todd Rosenbluth, head of ETF and research investment fund at CFRA. “Tesla’s absence from the index has been remarkable in 2020.”
Some strategists expect Tesla’s inclusion to spread across the S&P 500 itself. Tesla is a “volatile stock,” said Lindsey Bell, chief investment strategist at Ally Invest, which was moving an average of 4.1 percent. per day in 2020.
Others, however, say the addition of Tesla is unlikely to exacerbate rotations of the broader index. Had the shares been included in the S&P 500 all year, it would have increased the implied 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 Wall Street’s most controversial stocks, will also be forced to decide whether to own Tesla.
“Everyone knows this will come in two or three weeks, so the real question now is whether it continues to outperform and, if so, what the catalyst is,” said Thomas Hayes, managing member of Great Hill Capital LLC in New York. .
The increase in shares of Tesla, based in California, has placed its market value at about 660 billion US dollars, making it the sixth most valuable US listed company, with many investors. who consider it overrated.
Tesla is by far the most traded stock on Wall Street, with $ 18 billion in shares that averaged in each session over the past twelve months, easily outperforming Apple in second place. , with average daily transactions of US $ 14 billion, according to Refinitiv.
About one-fifth of Tesla’s shares are closely in the hands of Musk, the CEO and other insiders. Since the S&P 500 is weighted by the number of shares of companies actually available in the stock market, Tesla’s influence within the benchmark will be slightly reduced compared to its overall value.
(Additional feature by Shreyashi Sanyal in Bengaluru and April Joyner in New York; edited by Ira Iosebashvili, Megan Davies, Ana Nicolaci da Costa, Steve Orlofsky, Andrea Ricci, Richard Chang and Tom Brown)