Tesla shares surge to new high on S&P 500 inclusion

Tesla shares went on a wild ride in the final hour of trading on Friday before closing at another record high, as investors scrambled to obtain the shares ahead of its inclusion in the S&P 500 index.

The elevation of Elon Musk’s electric carmaker to the premier US stock market index had been expected to prompt a heavy volume of trading, but the price swings still caught some investors off guard.

The stock dropped as much as 4.2 per cent before surging to settle up 6 per cent at a new closing high of $695, giving the carmaker a market capitalisation of $658bn. More than 200m shares in Tesla, worth more than $148bn, were traded through the day, including 69m shares in the closing auction at $695.

“It was a wild end of the day,” said Robert Verderese, head of cash trading at Virtu Financial. The trading firm was able to process flows and maintain execution quality while share price was fluctuating, he said.

Tesla enters the S&P 500 as the sixth-largest company after Apple, Microsoft, Amazon, Alphabet, and Facebook, its shares having climbed 730 per cent since the start of the year.

The stock is up 70 per cent since mid-November, when S&P Dow Jones Indices announced the company would be joining the blue-chip benchmark. That latest leg of its bull run reflected investors and market makers hoping to sell to S&P 500 tracker funds that needed the stock on Friday.

In after-hours trading, the stock was lower by 3 per cent.

Line chart of Value of Tesla shares traded each day ($bn) showing Over 200m Tesla shares — worth more than $140bn — traded on Friday

Rob Arnott and analysts at Research Affiliates said the inclusion of Tesla illustrates why “traditional cap-weighted indices, such as the S&P 500, are structured to buy high and sell low — and Tesla is a prime example of this maxim”.

Once added to the S&P 500, “history indicates it is likely to underperform the market in the year after entry”, they said. 

Apartment Investment and Management, the real estate business that is leaving the S&P 500 to make room for Tesla, “is likely to outperform the index over the next year by as much as 20 per cent”, Research Associates said, based on the average performance of companies that left the S&P 500 between 1987 and 2017.

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