The news that investors were waiting for finally came after the closing bell on Monday as Tesla ($677.02|-0.99%) was finally announced that it would be added to the S&P 500 index as of December 21, 2020. Shares have been trading relatively flat over the past couple of weeks but the stock surged over 13% after hours upon the announcement.
Tesla was widely expected to make the cut in September during the fall quarter rebalancing, but investors were shocked when the electric vehicle industry leader failed to make the cut. Now, the near $400 billion market cap company will finally be included which should renew investor sentiment for the stock.
The inclusion into the S&P 500 means that Tesla can now be included in things like mutual funds, index funds, and ETFs that follow the performance of the index. This means potentially good things for the stock and should allow another surge in the short-term as investors try to get in at its current price levels.
Shares have already returned nearly 500% this year and was one of the leaders during the coronavirus pandemic as the automotive industry and investor attention shifted their focus towards the future of electric vehicles. With the surge, Tesla finds itself back over its 50-day and 200-day moving averages as the company has seen a downward trajectory since the September market correction, as well as its somewhat disappointing Battery Day event.
The future for Tesla was already looking brighter as the pending shift to a Biden administration in the United States has been fueling clean energy companies since November 3rd. Biden has already said he would pledge $2.2 trillion to clean energy and renewable resources in America, and several blue states including New York and California have made efforts to shift their attention to only selling electric vehicles in the not too distant future.
The landscape is just as high-flying in China where companies like Xpeng (NYSE:XPEV) and Nio ($38.12|-1.50%) have been red-hot stocks over the past few months. China represents the largest automobile market in the world, and the Chinese government is prioritizing tax rebates for citizens who purchase domestically produced electric vehicles.
So can Tesla’ stock keep running? More than any company announcement or product reveal, an inclusion in the S&P 500 legitimizes the company as a Wall Street cornerstone. Heading into the December 21 rebalancing date, Tesla shares should keep riding higher as anticipation over a huge number of outstanding shares being purchased into funds should fuel further investor optimism. Could it bring on some short-term volatility? Perhaps. But in the long-run Tesla’s activity should now mirror the market more as it will be tied to the performance of the S&P as a whole.
Disclaimer: I am long on TSLA. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. All information should be independently verified and should not be relied upon for purposes of transacting securities or other investments. See terms for more info.