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Wall Street is preparing for Tesla Inc(NASDAQ: TSLA) entered the S&P 500 Index on December 18.
What happened: The addition of the California-based automaker is expected to create challenges due to the size of the company, at $ 555 billion, and volatility. Tesla’s share price jumped 40% just after the S&P 500 announced on November 16, and the addition comes at a time of pandemic-related volatility, the Wall Street Journal reports.
Tesla is the largest company to ever join the index, and it will be the sixth in terms of market capitalization.
Elon Musk’s company could put $ 100 billion “in motion” when added as funds attempt to sell shares of other companies to buy Tesla, according to WSJ.
To help alleviate potential trading chaos, some Wall Street managers recommend splitting the addition “over two trading days,” which has never happened before, WSJ notes.
Ben Inker, who manages asset allocation at investment manager GMO, believes that any lack of preparation could have consequences. “The people who will pay the price if S&P is wrong are the investors in passive S&P,” he says.
Why is this important: Tesla’s addition to the S&P 500 also occurs on the same day the so-called “quadruple witchcraft” takes place. Every last Friday of the quarter marks the day the futures and options expire at the same time, which increases the volume.
According to investors, this could help liquidity that day, but could also increase market volatility.
Price action: Tesla shares traded 0.17% lower to $ 584.77 in after-hours markets on Friday.
Photo courtesy of Unsplash
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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