What happened
Shares of Tesla (TSLA -1.92%) fell sharply on Monday. The stock declined as much as 6.3%. As of 11:00 a.m. EST, however, the stock was down 5.1%.
The growth stock's decline follows S&P Global's (SPGI -0.20%) move before market hours on Monday to begin including the electric-car maker as a constituent of its popular S&P 500 market index. The inclusion may have been a catalyst for shares to take a breather after a huge run recently. Even including the stock's decline today, shares are up more than 60% since mid-November.
Image source: Getty Images.
So what
Shares of Tesla rose to all-time highs last week as many funds that mimic the S&P 500's holdings were adding the automaker's shares to their funds. In November, S&P Global had announced its plan to add Tesla stock to its index on Monday morning.
Since the S&P 500 is a market-cap weighted index, Tesla is the fifth-largest holding in the index. Since investors have known the stock would be included in the index since mid-November, lots of them, along with fund managers, were likely buying up the stock ahead of its inclusion. However, demand for the stock may have gotten ahead of itself in recent weeks, leading to a sell-off in the stock after it's official inclusion today.
Now what
It's unclear what sort of long-term impact Tesla's inclusion in the S&P 500 index will have on the stock. After all, it's difficult to know how much of the stock's recent run-up was driven by speculators trying to trade on the hype around the stock rather than investors betting on the company's long-term success.
Whatever the case, investors should stay focused on Tesla's underlying business instead of trying to guess where the stock will trade in the near term.
