TSLA Stock Price Volatility Drives Concerns ahead of Tesla S&P 500 Entry

UTC by Bhushan Akolkar · 3 min read
TSLA Stock Price Volatility Drives Concerns ahead of Tesla S&P 500 Entry
Photo: Depositphotos

Investors are expecting a massive capital inflow to Tesla shares over its entry to the S&P 500. Analysts say that even fund managers like Vanguard and Fidelity will be forced to seek exposure to the electric car company.

Tesla Inc (NASDAQ: TSLA) has had a phenomenal journey throughout 2020 so far with the company hitting new milestones this year. Despite the pandemic, Tesla has managed to register a surge in vehicle deliveries every consecutive quarter. TSLA stock price has multiplied investors’ wealth by 7x appreciating 600% this year. While all looks positive ahead, investors are waiting on the edge for TSLA debut at S&P 500 on December 21 next month.

Ever since the announcement about Tesla’s S&P 500 entry on November 16, the stock has already surged 40%. Last week, TSLA stock closed at $586 hitting a $555 billion market cap. The electric car company has also surpassed Berkshire Hathaway in market size.

However, Wall Street investors and traders are closely watching the stock movement at this point. The TSLA stock is prone to massive price swings and the volatility has got traders curious. As Tesla makes its way to the S&P 500, the big question is whether big investors will add the stock to their portfolio.

Tesla’s entry to the S&P 500 comes with challenges as it will be the largest company ever to join the index. Also, it is likely to have a 1% weightage of the index’s gauge, reports the Wall Street Journal. Looking at the weight of Tesla, the S&P 500 conducted a poll to ask big investors whether they would prefer adding Tesla all at once on 21st December or split it across two trading days. Many investors chose the two-day option by weighing the possible elevated volatility that the stock can ensue.

S&P 500 to Take The Final Call on TSLA on Monday

The decision of whether or not the S&P 500 would go for a two-day inclusion of the TSLA stock will come ahead today during the market hours. Whatever might be the decision, investors and traders are expecting the demand for Tesla shares to heat up even further.

Many also expect that the TSLA share price will cross $600 by the time of the S&P 500 debut. Howard Silverblatt, the senior index analyst at S&P Dow Jones Indices, says Tesla’s inclusion will trigger $51 worth of new demand for shares. He also expects heavyweight funds like Vanguard and Fidelity to gain exposure to TSLA shares.

The WSJ report also mentions that Tesla’s inclusion will “put more than $100 billion into motion”. Based on Tesla’s market cap, index funds will have to sell smaller stocks on the S&P 500. This will be anywhere between $60 billion and $80 billion. This same amount will flow into Tesla triggering its share price to the sky.

Currently, there’s a lot of speculation around Tesla’s entry to the S&P 500. The news has really sparked excitement as investors remain on the edge. Well, many argue that Tesla’s valuations look overboard at this point.

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