Sci-Tech

The carmaker will soon be in the S&P 500: What investors should know about the rise of Tesla – the economy

It’s another hit for Elon Musk. Tesla ranks among the S&P 500, one of the most important indices in the US stock markets. From next week, the carmaker will officially play the league with corporations such as Apple, Amazon and Microsoft, Coca-Cola, Disney and Starbucks. After S&P index operator Dow Jones Indices announced Tesla’s listing on Monday night (US time), Tesla’s share rose by more than 10 percent after hours.

The company of technology billionaire Elon Musek has long been a candidate for the prestigious American stock barometer. With a market value of almost $ 387 billion, Tesla is the best-rated carmaker in the world. By comparison, industrial giants General Motors, Ford and Fiat Chrysler will bring it together for a good $ 125 billion.

In fact, many investors expected to jump into the traditional stock index three months ago. At the time, despite the corona crisis, Tesla made four quarterly gains in a row – an important prerequisite for inclusion in the US index. Only corporations that report a profit of four quarters in a row have a chance to advance. In terms of market value, Tesla should have long belonged to the S&P 500: The carmaker is in 11th place on the list of the most valuable companies in the world. So it is more valuable than, for example, Disney, Netflix or Coca-Cola.

The rise of S&P is a new milestone for Tesla boss Elon Musek. Photo: AFP

Admission is ultimately decided by an eight-member commission, which meets every month and has some leeway. The task of experts is to ensure that the index, in addition to all formal requirements, also reflects the quality of the US economy.

Rarely does the group rise to such a high market value

The committee was probably considering accepting Tesla, also because of the carmaker’s already high market value: It is rare for a company to make the leap to S&P, which is already so valuable. The last mega-corporation to jump into the S&P 500 was Facebook in 2013. The social network had a market capitalization of $ 120 billion. In contrast, Tesla already has more than tripled. The consequences of his promotion to S&P are correspondingly large.

This is because the group’s share is also more focused on major investors. The S&P 500 is particularly broad – it includes the 500 most important stock exchange groups in the country. Therefore, it is a benchmark for many funds that want to invest their investors’ money in the US market. In addition, the S&P 500 has a different weight than the Dow Jones, for example in terms of market capitalization: the higher the market value of a company, the greater its weight in the index.

How investors react

As a result, the funds will have to acquire an adequate number of Tesla shares from next week: Experts expect that only passively managed funds will be able to buy Tesla shares worth $ 30 billion. These include ETFs that map the S&P 500 one-to-one. Then there are active funds, the composition of which is decided by fund managers. Many of them will probably join Tesla at the latest. It shows how much money it is. Index operators are well aware of this responsibility. You should therefore think about whether you can actually pick up Tesla at once, as usual – or better in two steps.

The growth of the US index is likely to maintain the long-term growth of the carmaker’s shares. Past experience shows. One of the last companies to grow on the S&P 500 is the Etsy online platform: Of the 500 companies in the US index, Etsy’s share has grown faster this year than almost any other.

Success after advancing to such a large index is not necessarily inevitable. For example, the Teledyne Technologies industry group, which has been on the S&P 500 list since the summer, performed worse than the overall market. However, the paper is not nearly as investor-focused as Tesla’s. with DPA

Report Rating
Close