Palantir Technologies PLTR and Dell Technologies DELL will be added to the S&P 500 Index on Friday, as part of a rebalancing that happens once a quarter.
Here's a look at what the addition means and how Tesla Inc TSLA stock performed since it joined the index in 2020.
What Happened: Palantir will be added to the S&P 500 Index for the first time as part of the rebalancing, while this will be a homecoming for Dell, which was previously a member.
Being a part of the S&P 500 Index can be a great thing for stocks and their investors as it means that the company gets more notoriety and is also tracked by the many ETFs that track the index such as the popular SPDR S&P 500 ETF Trust SPY.
Stocks that are added to the S&P 500 Index don't always experience jumps in their share price in the short or long term. In fact, many stocks see a run-up in their share price when it is announced they are going to be added before falling after the addition takes place.
One of the biggest S&P 500 moves of all time was the decision to include Tesla in the index. The move came as the company turned profitable and had met other requirements to be included.
Tesla officially joined the S&P 500 Index on Dec. 21, 2020, with the stock all added at once, a move that came as experts decided if the stock should be added in two tranches due to the stock's size.
At the time Tesla was added to the S&P 500, the stock made up the sixth largest weighting in the index. Tesla is now the 11th largest weighting.
Tesla shares struggled in its first two years in the S&P 500 with a 46.5% decline, including a more than 60% drop in 2022. The large weighting of Tesla and subsequent stock price drop weighed on the market index's performance along with the ETFs that tracked it.
Investors who bought Tesla the day it was added to the S&P 500 may have done better buying days or months later after the fanfare had faded.
A $1,000 investment in Tesla stock on Dec. 21, 2020, could have bought 4.89 shares based on a split-adjusted price of $222.83. The $1,000 investment would be worth $1,192.77 today based on a price of $243.92 for Tesla at the time of writing. This represents a return of 19.3% over the last nearly four years, as illustrated on the Benzinga Pro chart below.
For comparison, the same $1,000 investment in the SPY, which tracks the S&P 500, could have bought 2.64 shares of the ETF. The $1,000 investment would be worth $1,507.39 today, up 50.7% over the same time period.
What's Next: Palantir and Dell are both trading higher year-to-date and saw spikes when it was announced they would be added to the S&P 500 Index. The moves could be short-lived lived and investors should be aware that shares won't just trade higher Friday or Monday because the stocks are now included in the market index.
Freedom Capital Markets Chief Market Strategist Jay Woods shared some recent examples in his weekly newsletter ahead of the S&P 500 rebalance, which traditionally takes place on the third Friday of March, June, September and December. Some additions happen when mergers and acquisitions are completed to replace old members.
- Lululemon Athletica Inc LULU: Was added in October 2023 and jumped 10% on the news and "faded after three days and inclusion day was a non-event," Woods said.
- Uber Technologies Inc UBER: Stock was added in December 2023 and moved up 8% before giving gains back two weeks later.
- Super Micro Computer Inc SMCI: Stock jumped 27% when the S&P 500 addition was announced and was later up only 10% when shares were added officially in March 2024. Shares have fallen since the stock was added.
"So far PLTR has rallied 17.3% since the announcement, while shares of Dell have climbed 12.1%. Expect them to fade into Friday's close but resume their recent trends within a few weeks of the addition into their next earnings cycle," Woods said on Monday.
Woods said some market enthusiasts claim that being added to the S&P 500 Index is a curse, which Tesla and Super Micro may illustrate above.
"Most additions have fared well and resumed their trends and normal activity afterwards."
For Palantir and Dell, time will tell if the addition is a curse or a normal event ahead of more growth for shares.
PLTR, DELL Price Action: Palantir shares traded at $36.25 at the time of writing Friday versus a 52-week trading range of $13.68 to $37.35. Palantir stock is up 122.1% year-to-date.
Dell shares traded at $117.06 at the time of writing Friday versus a 52-week trading range of $63.90 to $179.70. Dell shares are up 57.5% year-to-date.
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