What happened
Typically, when a company's stock is knocked out of the S&P 500 index, it's cause for concern and not celebration. But that wasn't the case with Lumen Technologies (LUMN) on Monday. Quite the opposite occurred, with investors trading the stock up by a robust 4.1% on the day. That trounced the less than 0.1% gain of its soon-to-be-former home, the S&P 500.
So what
In one of its frequent reshufflings, S&P Dow Jones Indexes announced some adjustments to its offerings on Monday. The main one concerned Lumen -- effective Monday, March 20, it is being replaced with finance sector mainstay stock Fair Isaac & Co in the S&P 500 and will instead be included in the S&P SmallCap 600. In the latter index, it replaces and displaces troubled retailer Bed Bath & Beyond.
Using the boilerplate language it employs for these types of changes, S&P Dow Jones Indices wrote sensibly that "all companies moving to the S&P SmallCap 600 are more representative of the small-cap market space."
You can say that again with Lumen. The company was a monster S&P 500 underperformer, with its share price eroding by nearly 40% year to date alone. Being a relatively small fish among larger, better-capitalized telecoms with much wider customer bases is proving to be quite the challenge for the company; this struggle is reflected in the 5% revenue decline and very steep ($1.5 billion) net loss it posted in 2022.
Now what
So with that withered share price, Lumen clearly doesn't belong in the bellwether large-cap index. S&P 500 companies are considered by many investors to be leaders in the market and examples to emulate. Lumen isn't in that position just now, and it should benefit from the reduced pressure of not being one of the over-scrutinized 500.
