What happened
Shares of Hostess Brands (TWNK) rose a quick 10% at the open on Jan. 27. The maker of packaged snacks, like the iconic Twinkies that are referenced in its stock ticker, didn't report any news of note. However, S&P Dow Jones Indices made a change that will have a direct impact on who owns the company's stock.
So what
According to S&P Dow Jones Indices, Hostess Brands will be added to the S&P 600 SmallCap Index on Feb. 1. In the grand scheme of things this isn't a huge deal and it changes absolutely nothing about the company's overall business. However, there's a ripple effect from this announcement with regard to the stock.
Image source: Getty Images.
When a company gets added to an index, any exchange traded fund or index mutual fund that tracks the index has to buy its stock. Some investors see this as an opportunity to front run the index trackers and they rush in to buy ahead of the actual date of the change. Thus, there's often a big increase in volume, and usually price, for stocks that are being added to an index. That's basically all there is to the backstory for Hostess today.
Now what
While it's nice to see a stock you own pop 10%, in the long term nothing of note has changed about Hostess today. And, an hour or so into the trading day, the gain had already begun to dissipate, with the stock holding on to just 7% or so of its earlier advance. Essentially, you shouldn't read into the stock gains here; it's likely to be little more than market noise over the long haul.
