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UPDATE: Tesla shares plummet after stock left out of S&P 500 rebalancing


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UPDATE: Tesla shares plummet after stock left out of S&P 500 rebalancing

In less than two weeks, an e-commerce site, an automatic test equipment maker and a pharmaceutical company will be added to the S&P 500. The biggest U.S. electric-vehicle maker — also one of the biggest listed stocks by market cap — will not be, and its shares went into a dive.

S&P Dow Jones Indices announced Sept. 4 that Etsy Inc., Teradyne Inc. and Catalent Inc. will be added to the benchmark large-cap index in its quarterly rebalancing Sept. 21, and H&R Block Inc. Coty Inc. and Kohl's Corp. will be removed.

Many analysts had expected Tesla Inc. to be added to the S&P 500 after reporting its fourth consecutive profitable quarter in July, but the carmaker was again left out of the index.

"I think it was a surprise and, judging from Tesla's premarket share price this morning, the market seems to agree," Craig Erlam, a senior market analyst with OANDA, said Sept. 8, the first day of trading since the announcement.

Following the snub, Tesla stock closed at $330.21 on Sept. 8, down more than 21% from Sept. 4.

Tesla, which announced a $5 billion capital raise Sept. 1, had a market cap of $389.8 billion on Sept. 4. Reflecting a 590% share price rise since March 18, the company's market cap peaked at $464.3 billion on Aug. 31 after bottoming out at $66.5 billion, according to S&P Global Market Intelligence. The average market cap of an S&P 500-included stock is about $57 billion.

In a Sept. 7 note, Chris Bennett, S&P Dow Jones Indices' director of index investment strategy, said he did not have any insights on the decision from the index committee to keep Tesla out of the S&P 500, but he said the decision was "a good reminder that the committee has the final say on any changes to the S&P 500, and that they retain discretion on which stocks best represent the broad universe of U.S. listed companies."

Erlam said the snub will not be "particularly damaging" for Tesla, since their position outside the index is likely to be short-lived.

"Their inclusion into the index in the not-too-distant future looks inevitable. It just needs to prove that this is more than a purple patch and its stock price and performance is sustainable," Erlam said. "It's a small setback for the company, with the demand from index trackers for its stock being a natural boost, but it shouldn't be anything more than that."

In a Sept. 6 note, Howard Silverblatt, a senior index analyst with S&P Dow Jones Indices, wrote that when the S&P 500 is rebalanced Sept. 21, 396 listed companies will increase their index share count and 86 will decrease them.

The S&P 500, which is weighted by market cap, will increase its total market value by about 0.1% in the rebalancing, to $28.48 trillion, Silverblatt said. Consumer discretionary stocks will account for a $26.8 billion increase in the rebalanced index's total market value from the second quarter, while information technology stocks will account for $29.6 billion less total market value.

The S&P 500 closed down 2.78%, with tech stocks losing 4.6% on the day, the largest loss of any sector. The large-cap index has fallen nearly 7% since Sept. 2.