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Tesla shares fall 6% because it enters the S&P 500 with 1.69% weighting, fifth largest

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Tesla’s S&P 500 recording is official, and its debut isn’t looking too good.

The stock lost 6.5% on Monday as investors who bought the stock in anticipation of entering the benchmark started cashing in. The stock fell to its session low after it was reported that Apple was pushing electric vehicle production.

The electric car maker has a weight of 1.69% in the index, the fifth largest. It is the sixth largest company in the large-cap benchmark when you add up Alphabet’s share classes.

The historic expansion of the S&P 500 bows Tesla’s outstanding 2020. The Elon Musk-led company has posted revenue for five consecutive profitable quarters amid increased demand for electric vehicles. Prior to Monday, Tesla shares were up more than 730% that year, bringing the company’s market cap to over $ 658 billion. (S&P Dow Jones uses the float-adjusted market value instead of the direct number.)

Tesla’s entry is the largest of all time for the influential stock index and perhaps the most dramatic.

Investors, including passive fund managers and active managers using the S&P 500 as a benchmark, got into Tesla shares last run, depressing the stock nearly 6% on Friday to close at an all-time high of $ 695 per share . Over 200 million Tesla shares changed hands during this session, more than quadrupling the average trading volume of 30 days.

Traders believed, however, that speculators were betting on the stock in the short term to stay ahead of these index manager flows. You could exit the stocks now that they are officially added to the index. Many investors also believe that Tesla stock is valued for perfection and is prone to a year-end sell-off with a lack of catalysts.

Reuters reported Monday afternoon that Apple plans to produce a vehicle by 2024 that could contain next-level battery technology.

Tesla is one of the most expensive companies to ever join the S&P 500, with a profit of 186x. However, the impact on the valuation of the benchmark turned out to be less than expected by many. The price / earnings ratio of the S&P 500 for 2021 will increase from 22.3 to 22.6, according to Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices.

With Tesla paying no dividends, the S&P 500’s dividend yield will drop from 1.56% to 1.53%, Silverblatt said.

In terms of the S&P 500’s performance, the high-growth inventory could potentially move the needle. For every Tesla move of $ 11.11, the S&P 500 changes 1 point, according to the index analyst.

Goldman Sachs previously estimated that the total return on the S&P 500 would have been increased 2 percentage points if Tesla had been a year-round component. The S&P 500 has so far increased by around 14% in 2020.

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