What happened
Shares of Tesla (TSLA 2.32%) surged higher on Tuesday, climbing as much as 13.2%. As of 10 a.m. EST, the stock was up 10.2%.
The growth stock's gain follows news that the electric-car maker's stock has been selected to be included in the S&P 500 index.
Tesla's Model S, X, 3, and Y. Image source: Tesla.
So what
With five consecutive quarters of profitability behind it, the electric-car maker became eligible to join the S&P 500 index fund earlier this year. Many investors expected the stock to be added to the index during S&P 500's last quarterly rebalancing but the stock was passed over at the time.
Tesla is set to be one of the 10 largest companies in the market-cap weighted index, and the S&P 500 index committee said it is "seeking feedback through a consultation to the investment community to determine if Tesla should be added all at once on the rebalance effective date or in two separate tranches ending on the rebalance effective date."
Based on the stock's move higher on the news that Tesla will be included in the index before Dec. 21, the market seems to be speculating that demand for the stock will exceed supply, pushing shares even higher, as the S&P 500 and other funds that mirror the popular index load up on the stock.
Now what
While it's certainly possible that Tesla stock's inclusion in the index fund will ultimately help the stock price appreciate, investors should keep in mind two things. First, the stock's jump today makes shares meaningfully more expensive than they were yesterday. Second, investors should stay focused on Tesla's underlying business and the stock's long-term potential; it's always possible that the stock's boost from this news will prove to be short-lived.
