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Wall Street Braces for the Impact of Tesla's Big Day on Monday

By Danny Vena - Dec 18, 2020 at 1:00PM

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The automaker's addition to the S&P 500 represents a record-breaking rebalancing.

After months of anticipation, Tesla ( TSLA 0.68% ) will join the big leagues on Monday and begin trading as part the S&P 500 index. Funds that track the stock market index will need to buy roughly 129.9 million shares of Tesla in order to match the composition of the index, according to estimates released by Standard & Poor's. At the current stock price of roughly $655, that could result in purchases of more than $85 billion in Tesla stock, according to CNBC

As massive as it is, that figure could end up being conservative. There are many funds and individual investors that unofficially track the S&P 500, without paying the index the required fee. The amount of these "closet indexers" is difficult to nail down, but could increase the number of shares purchased by as much as 50% to 100%.

A red Tesla Model 3 driving down a deserted road.

Image source: Tesla.

That could result in big moves for the stock at the market close on Friday, as funds will add Tesla in advance of Monday's S&P trading debut. At $85 billion, this will mark the largest rebalancing of the index in history, eclipsing the $50.8 billion that changed hands in Sep. 2018.

Tesla will represent the seventh largest position in the S&P 500, accounting for roughly 1.5% of the index's weight. Because of the company's $630 billion market cap, it won't take much of a swing in the stock price to impact the index. At the current share price of $655, an increase of $11.11, or about 1.7% of Tesla's stock price, will move the index by 1%.

Given the popularity of the stock, particularly among novice traders, the S&P 500 and Tesla shares could be in for a wild ride in the months and years to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
$1,144.76 (0.68%) $7.77
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,567.00 (-1.90%) $-88.27

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