Tesla shares set another record high on Friday ahead of their inclusion in the S&P 500 at the end of the day, an event that is set to prompt a frenzy of trading on Wall Street.
The addition of Elon Musk’s electric car maker will necessitate $85.2bn of trades from investors that track the S&P 500, according to Howard Silverblatt, senior index analyst at S&P Dow Jones indices.
Investors will also have to sell an equivalent amount of shares from across the rest of the S&P 500, to make sure their holdings stay in line with the index.
Trading volumes associated with the latest rebalancing of the S&P 500 are expected to easily surpass the record of $50.8bn set in September 2018.
Tesla stock was up another 1 per cent to $665 in early afternoon trading on Friday. Its hefty valuation means it will enter the blue-chip index with a weighting of 1.57 per cent and rank as the sixth-largest company according to Mr Silverblatt.
Apple, Microsoft, Amazon, Alphabet, Facebook are the only companies bigger.
Tesla shares have climbed more than 60 per cent from mid-November, when the index provider announced the company would be joining the blue-chip benchmark. Since the start of the year, they are up more than 650 per cent, giving a market capitalisation of $621bn that dwarfs rival carmakers.
The latest run-up in the share price has been linked to investors and market makers hoping to sell to tracker funds on Friday.
Rob Arnott and analysts at Research Affiliates said the inclusion of Tesla illustrates why “traditional cap-weighted indices, such as the S&P 500, are structured to buy high and sell low — and Tesla is a prime example of this maxim”. Once added to the S&P 500, “history indicates it is likely to underperform the market in the year after entry”, they said.
Apartment Investment and Management, the real estate business that is leaving the S&P 500 to make room for Tesla, “is likely to outperform the index over the next year by as much as 20 per cent”, Research Associates said, based on the average performance of companies that left the S&P 500 between 1987 and 2017.