REUTERS: Shares of Tesla Inc soared to a record high on Friday in a hectic trading day as investors geared up for the electric carmaker’s long-awaited entry into the benchmark S&P 500 index.
The company led by billionaire Elon Musk will become the most valuable company ever admitted to Wall Street’s top benchmark on Monday, accounting for more than 1 percent of the index. Shares are up about 70 percent since mid-November, when it debuted in the S&P 500, and are up 700 percent so far in 2020.
Tesla’s stock fell 6 percent to a record $ 695.
The addition of Tesla to the S&P 500 is forcing index-tracking funds to buy about $ 85 billion worth of stock by the end of Friday’s session so that their portfolios reflect the index, S&P Dow Jones Indices said. Those funds must simultaneously sell shares of other S&P 500 components worth the same amount.
The shares fluctuated between gains and losses late in the session before rising in price and volume towards the end of the trade.
The move was likely the result of a last-minute purchase in preparation for the addition to the S&P 500, said Dennis Dick, in-house trader at Bright Trading in Las Vegas.
Sales in Tesla stock topped $ 120 billion shortly after 4:00 pm EST (2100 GMT), with a volume of over 200 million as the stock traded after hours, according to data from Refinitiv. Trading volume for Tesla averaged 53 million shares over the past 10 sessions.
“That kind of volume is just a little bit insane,” Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas, said of Friday’s move.
Tesla shares fell during out of hours trading, most recently by 3 percent.
Tesla’s inclusion may be a double-edged sword for index trackers, buying their volatile stock after this year’s massive run-up.
“Index-based funds will pay a higher price than those who bought the stock when the effective date was announced, but will benefit as the fund better represents the US large-cap universe,” said Todd Rosenbluth, head of ETF and mutual fund. research at CFRA. “Tesla’s absence from the prominent index was remarkable in 2020.”
Some strategists expect Tesla’s uptake by the S&P 500 itself to ripple. Tesla is a “volatile stock,” noted Lindsey Bell, chief investment strategist at Ally Invest, who moved an average of 4.1 percent per day in 2020.
However, others say the addition of Tesla is unlikely to worsen the twists in the broader index. Had the stock been included in the S&P 500 for the entire year, it would have increased implied volatility on the benchmark index 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 thus far avoided investing in one of Wall Street’s most controversial stocks, will also have to decide whether or not to own Tesla.
“Everyone has known for two or three weeks that this is coming, so the real question now is whether it will remain an outperformer and, if so, what is the catalyst,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York .
California-based Tesla’s stock appreciation has brought its market value to approximately US $ 660 billion, making it the sixth most valuable publicly traded US company and many investors consider it hugely overvalued.
Tesla is by far the most-traded stock on Wall Street in terms of value, with an average of $ 18 billion in stock exchanged in each session in the past 12 months, easily beating Apple in second place with an average daily trade of $ 14 billion, according to Refinitiv.
About one-fifth of Tesla’s stock is held by Musk, the CEO, and other insiders. Since the S&P 500 is weighted based on the number of shares of companies actually available in the stock market, Tesla’s influence within the benchmark will diminish somewhat compared to total value.
(Additional reporting 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)