Wednesday, April 21, 2021

Tesla shares fall 4.5% ahead of day one of S&P 500

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Shares of Tesla Inc. fell 4.5% in pre-market trading on Monday as the electric vehicle maker makes its debut on the S&P 500 index.

Its shares have catapulted 731% this year in anticipation of thehistoricalinclusion, making it the largest company to be added to the benchmark. The EV pioneer will also join the S&P 100, replacing the oil and gas company Western Oil Corp., which fell 7.5% pre-market.

“Welcome to the S&P 500 Club,” said Daniel Ives, analyst at Wedbush, in a report. The addition of the index marks a “defining chapter of success” for the company, he said.

Futures on the S&P 500 were trading down 0.5%, following the drop in European stocks after several major countries decided to halt travel from the UK amid concerns over a new strain of Covid-19.

Traders who spent most of the year pushing Tesla shares higher in anticipation of increasing demand for index funds hit their peak on Friday, as frantic buying by passive managers pushed stocks up close. 5% when the stock market closes. At the end of the day, Tesla shares closed at an all time high. More than $ 150 billion in Tesla shares were traded on Friday, before the index was included.

“There is strong precedence for positive stock returns before the inclusion of the S&P 500 and after the announcement, but very limited precedent for short-term performance after inclusion,” the Sanford C analyst wrote. Bernstein Toni Sacconaghi in a note at the beginning of the month.

Market strategists have been divided over the impact of adding the deemed volatile stock on the benchmark gauge. According to Souhow Yao, quantitative derivatives strategist at Susquehanna, the inclusion will have a limited impact on implied volatility and that if Tesla had been added a month ago, the volatility of the S&P 500 would have actually decreased.

On the other hand, Steve Sosnick, chief strategist of Interactive Brokers, said that Tesla’s historic volatility suggests daily movements of around 4% up or down, and at its current market value, it could end up moving the index by about 2 points.

– With help from Beth Mellor.

More to read absolutely financial cover of Fortune:

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