Tesla shares are shifting on first day of trading in S&P 500

The swoon also coincided with a broader decline in the stock index as investors became nervous about worsening coronavirus cases in the UK and tougher lockdown measures. The worsening cases have shaken many as enthusiasm about coronavirus vaccinations has pushed stocks to records in recent weeks.

For Tesla investors, Monday’s slide made a small dent in what was an otherwise blockbuster year of gains. Shares of the Palo Alto, California company are up 687% this year, hitting a record Friday, betting dozens of millionaires who had bet heavily on the company and its charismatic and sometimes controversial director, Elon Musk. A significant portion of those gains came after S&P Dow Jones Indices said last month it would add Tesla to the benchmark, with Tesla up nearly 6% on Friday alone.

But the picture is different for index investors who on Monday suddenly owned a piece of the most valuable car manufacturer in the world. Investors in the exchange-traded fund SPDR S&P 500 Trust, one of the largest to follow the benchmark, and other index-tracking ETFs and mutual funds that missed Tesla’s rally are now feeling the impact of the automaker’s decline on Monday .

Tesla got into the S&P 500 with a weighting of 1.7%, just smaller than Facebook Inc.

and bigger than Berkshire Hathaway Inc.,

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

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

Analysts recently estimated that Tesla’s addition to the S&P 500 index could potentially add about a quarter of a point to the Cboe Volatility Index, or VIX, the options-based measure of market turbulence. Traders had said this inclusion would also cross the derivatives markets for both Tesla and the S&P 500.

On Monday, the gauge jumped about 5 points to 26.87 in early trading, on track to close at its highest level since early November as major US indices fell.

Even bullish Tesla investors optimistic about the company’s long-term outlook had said they were preparing for a drop in the company’s stock price after the S&P 500’s inclusion as the first, concentrated burst in demand from passive investors subsided .

Investors were bearish towards Tesla – and there are many – went even further. Several investors and analysts had expressed concerns that Tesla was showing some classic signs of a bubble that could burst. Some also drew comparisons with Yahoo Inc., the Internet company whose market value peaked less than a month after joining the S&P 500 in December 1999.

“These two examples represent the environment at the time,” said Michael O’Rourke, chief market strategist at JonesTrading. “There is a lot of money behind many companies that have yet to be proven. That’s definitely the definition of a speculative frenzy. “

Index tracking funds bought about $ 90 billion worth of Tesla stock by the end of Friday’s session, Mr. Silverblatt, and reduced their holdings of smaller stocks in the index by an equivalent amount. A major concern for Friday’s session was whether index funds would be able to buy the correct number of stocks at closing price to ensure they reflected the composition of the S&P 500. Funds that fell short would record the mismatch as a tracking error.

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

The SPDR S&P 500 Trust fund, the world’s largest ETF with $ 318.4 billion in assets, carried about the same weighting for Tesla as the S&P 500 as of Friday, as did the iShares Core S&P 500 ETF, which sold $ 237.7 billion. of assets.

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