Yesterday, shareholders approved an acquisition that will move Tiffany under the umbrella of European luxury retailer LVMH Moet Hennessy Louis Vuitton. The open slot in the S&P 500 index will be filled by solar technology company Enphase Energy (NASDAQ:ENPH).
That started a chain reaction that also affected the positions of Celsius Holdings (NASDAQ:CELH), e.l.f. Beauty (NYSE:ELF), and Capri Holdings (NYSE:CPRI). After an initial spike of more than 6%, Enphase stock settled to a gain of just over 1%, as of 11:10 a.m. EST. Shares of Celsius were still up 12% after its initial spike, and e.l.f. Beauty shares rose 7%, while Capri shares didn't react as much and were down 3.6%.
When it is announced that stocks will be shuffling around market indexes, shares typically bounce since once a stock is added to an index, it will have to be bought by operators of index funds.
The index shakeup that will take effect on Jan. 7, 2021, is as follows:
- Enphase Energy joining the S&P 500;
- Capri Holdings joining the S&P MidCap 400;
- Celsius Holdings joining the S&P SmallCap 600;
- and e.l.f. Beauty joining the S&P SmallCap 600.
Of course, movement into, or out of, a stock market index doesn't change the business fundamentals of a company. But more exposure from a move can help highlight the company to investors.
The stocks of these four companies have had diverging movements in 2020.
Enphase has been riding the growth in renewable energy. It makes solar panel microinverters -- the devices that convert the DC electricity generated by solar panels into the AC power that runs our homes, businesses, and most everything else -- and spent much of 2019 adding production capacity to meet surging demand.
Celsius, a maker of fitness and health drinks, has also seen strong growth, with sales up 86% for the nine months ended Sept. 30, compared with the prior-year period. Impacts from the pandemic have hurt retailers like e.l.f. and Capri, but sales have been lackluster long before that, as the three-year chart below shows.
Addition to a stock index isn't a good reason to jump into an investment. Though it's possible that the stock could see a bump as the inclusion becomes effective when fund managers buy shares, other factors could supersede any short-term move.
Investors can use the news as a starting point to get to know a company and its business, though. The recognition the inclusion brings can give investors new ideas and a reason to do some further research.