Tesla Stock Is Rising Ahead of Inclusion in the S&P 500. What to Watch This Week. - Barron's

At current prices, Tesla will have about a 1.5% weighting in the S&P 500.
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Shares of Tesla will join the S&P 500 on Dec. 21, and that is when funds indexed to the S&P essentially start buying. That makes this week a big deal for the stock—for two reasons.

For starters, this is the final week traders have to position themselves ahead of index buying. That might drive higher-than-average volatility.

Second, Friday’s closing price will set the weighting of Tesla (ticker: TSLA) in the Index, because the S&P 500 is weighted by market capitalization—with adjustments for the shares available for trading. About 760 of Tesla’s roughly 950 million shares are available to trade.

At current prices, Tesla will have about a 1.5% weighting in the S&P 500. Apple (AAPL), for comparison, has about a 5.8% weighting.

The higher the price for Tesla goes, the larger the impact of any post-indexation moves. That isn’t really a risk for index funds because they only track the index. It is a bigger risk to fund managers whose products are benchmarked to the S&P. They have to decide when to add Tesla stock and whether they will buy more or less than the index weighting.

The bias for Tesla stock this week is probably up, but it is hard to say how high it could go. Tesla, by virtue of its size and stock returns, is a special situation. It is the most-valuable stock to ever be added to the S&P 500 and it will likely have the largest weighting when added, a distinction that belongs to Berkshire Hathaway (BRK.B) for now.

The electric-vehicle pioneer’s market cap is almost $600 billion and the stock’s 52-week high is $654.32—a surprising numbers sequence—set on Dec. 9. Shares are up about 750% over the past year. What’s more, Tesla shares are up almost 50% since Nov. 16 when the S&P announced it would be added.

Tesla shares were up 2.1% to $622.76 shortly after the market opened on Monday. The S&P 500 was up 0.6% and the Dow Jones Industrial Average was 0.7% higher.

Options markets imply Tesla stock will move about 22% up or down between now and mid-January. The comparable calculation for General Motors (GM) stock is about 10% to 12%.

Write to Al Root at allen.root@dowjones.com

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