The biggest single stock re-indexing in history

This will be written about for years, if not decades to come.

The insertion of Telsa (Nasdaq: TSLA) stock into the S&P 500.

Tesla is projected to be about 1.01% of the index, although this will certainly rise as the re-indexing occurs. Already speculators have shot the stock up another 14% in after-hours trading. Tesla’s market cap is about $440 billion. S&P estimates that about $50 billion will be indexed to Tesla stock, and this is effective December 21 (when the rest of the index is also rebalanced). They released a short consultation whether institutions want to include the stock in tranches or in one gigantic bite.

Normally inclusions (and deletions) are given shorter notice, but presumably they thought they needed to give a whole month to do this one. What’s going to happen is there will be intense games played with Telsa, the likes which will never have been seen in history. Every day trader on the planet will be on this like moths to a raging flame (and indeed, some of those moths will get engulfed into the fire!). This will be one to watch. Of course, I’m too old to be doing the daytrading but I’m sure all those Robinhood players will have fun, especially with casinos still closed.

Tesla’s products are great, but valuation-wise one has to think that this really feels “toppy”, including the index as a whole. Perhaps monetary policy is such that default capital continues to get parked into the index, valuations be damned.

So the conclusion is that we have a captive buyer that is forced to pile $50 billion into a single stock. Who’s going to sell?