Tesla is joining the S&P 500, and that could have investors scrambling to buy its shares.

In order to stay aligned with the SP 500 when Tesla is officially added before the market opens on Dec. 21, JPMorgan Chase analysts estimate that such indexers will need to buy roughly $34 billion worth of Tesla shares.

But Tesla’s large size also could stimulate a sell-off in the index’s other stocks, according to analysts at Bespoke Investment Group, because the index funds will need to sell some of the other stocks in the benchmark.

Previous large additions to the index — such as the inclusion of Berkshire Hathaway in February 2010 — coincided with a sell-off in the over all index, the analysts said.

With a market capitalization of about $390 billion — on par with Johnson Johnson — Tesla will immediately become one of the largest companies in the index. It’s unusual for a company to be so large when it earns inclusion in the index, but the company’s failure to steadily produce profits had until recently made it ineligible. To be included in the SP 500, a company must report positive fully audited profits in the four most recent quarters, a financial feat Tesla has only accomplished this year.

Tesla’s sheer size will give it immediate influence over the SP 500, which is weighted by market capitalization. If shares of the electric carmaker continue their remarkable rise, it will help push the SP 500 higher. Of course, it is also true that a slide in Tesla’s volatile shares will hurt the index.

Article source: https://www.nytimes.com/2020/11/17/business/tesla-s-and-p-500.html