Wall Street Braces As Tesla Addition To S&P 500 Could Put $100 Billion Into Play: WSJ

Wall Street Braces As Tesla Addition to S&P 500 Could Put $100 Billion Into Play: WSJ

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Wall Street is bracing for Tesla Inc. (TSLA)'s arrival to the S&P 500 Index on Dec. 18.

What Happened

The addition of the California-based automaker is expected to create challenges because of the company's size, $555 billion, and volatility. Tesla's share price jumped 40% right after the S&P 500 announcement on Nov. 16, and the addition comes at a time of pandemic-related volatility, the Wall Street Journal reports

Tesla is the biggest company to ever join the index, and it’ll be the sixth largest by market capitalization. Elon Musk’s company might put $100 billion “in motion” when added, as funds try to sell other companies’ stock to buy Tesla’s, according to WSJ. To help ease the potential trading chaos, some Wall Street managers recommend splitting the addition “over two trading days,” something that has never happened before, WSJ notes.

Ben Inker, who manages asset allocation at investment manager GMO, believes any unpreparedness might have consequences. “The people who will pay the price if S&P screws up are the investors in passive S&P,” he says.

Why It Matters

Tesla's addition to the S&P 500 also happens the same day the so-called “quadruple witching” takes place. Every last Friday of the quarter marks the day when futures and options expire at the same time, which increases the volume. This, investors say, might help with the liquidity that day, but may also increase market volatility.  

Price Action

Tesla shares traded 0.17% lower at $584.77 in the after-hours markets on Friday.

© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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