The higher they climb, the harder they fall. That's how some investors feel right now, as the Nasdaq Composite (^IXIC 1.10%) has put together a three-day losing streak of monumental proportions. Just since last Thursday, the Nasdaq has fallen nearly 10%, with another triple-digit decline taking the index down another 465 points on Tuesday.

Among big-name stocks, Tesla (TSLA 3.17%) was one of the biggest decliners. Part of what hit the stock was the fact that the managers of the S&P 500 index decided to snub the electric vehicle giant. Instead, they let some other stocks in, including Etsy (ETSY -2.35%) and Teradyne (TER 2.68%). Those two stocks didn't fare all that well today, either, showing that on a down day, even an index-related bump won't always have a huge impact.

Growling bear with shrubs behind.

Image source: Getty Images.

The winners of the S&P contest

The announcement from S&P Dow Jones Indices late Friday was entirely straightforward. Nasdaq components Etsy and Teradyne will move up from the S&P MidCap 400 to the S&P 500 effective Monday, Sept. 21. They'll join NYSE-listed Catalent in replacing NYSE stocks H&R Block, Coty, and Kohl's.

It's easy to understand how the companies that got demoted found themselves in this situation. Coty and Kohl's both have huge exposure to the retail sector, and both have struggled to find solutions that could sustain their past business success. Even as some of their respective competitors have recovered somewhat from the worst of the COVID-19 pandemic, Kohl's and Coty have gotten left behind. Similarly, H&R Block has suffered from an extended tax season and coronavirus-related restrictions on in-person tax prep that have favored the more popular tax software packages from Intuit's TurboTax.

Meanwhile, Etsy has been able to take advantage of coronavirus conditions. The company has benefited from its online presence, helping many arts and crafts makers find a commercial outlet for their products during an extremely difficult time financially. The stock is up 150% so far in 2020, even though it eased lower by a fraction of a percent on Tuesday following the S&P announcement.

For Teradyne, things have been a lot tougher. The stock has bounced back from the bear market in February and March, but it's only up around 10% on the year. Teradyne's mix of businesses has seen big disparities in performance. Semiconductor testing systems have done well in an up cycle for chipmakers, but exposure to aerospace has made investors a bit more nervous about the company. Teradyne shares lost 4% Tuesday.

Tesla's disappointment

There was plenty of speculation all weekend about why Tesla got left out of the S&P 500. The most compelling explanation mirrors what Fool analyst Alex Dumortier explained in great detail a couple of weeks ago.

Some of Tesla's revenue comes from its sale of automotive regulatory credits. As Alex described, Tesla earns credits that it doesn't need as an EV specialist, so it's able to sell those credits to traditional automakers. The money that those other automakers pay Tesla falls straight through to the bottom line as profit.

Again, the S&P press release doesn't explain the reasoning for leaving Tesla out of the index. But some believe that the index managers weren't comfortable with the idea that so much of Tesla's profits come from credits rather than its core business of selling automobiles. With the ever-present possibility that those credits could get removed in the future, the S&P managers might not have wanted to deal with that risk.

Tesla's 21% drop Tuesday was the result of disappointed shareholders hoping that index funds would be forced sellers. The move won't keep Tesla out of the S&P 500 forever, but it shows how little patience traders have with the auto stock .