Saturday, 19 December 2020

Tesla to become the most valuable company EVER to join the S&P 500 when it debuts Monday after its stock hit an all-time high in Friday trading

 Tesla shares hit a lifetime high in anticipation of its addition to the S&P 500 next week closing up six percent at $695 on Friday.  

The electronic car maker will on Monday become the most valuable company to be ever added to Wall Street's main benchmark, accounting for 1.52 percent of the index.  

The electric car maker's shares had already surged about 60 percent since mid-November, when its debut in the S&P 500 was announced. 

California-based Tesla's stock has skyrocketed almost 700 percent year-to-date, putting its stock market value at over $650 billion. 

It makes it the sixth most valuable publicly listed U.S. company, with many investors viewing it as wildly overvalued.  

Tesla shares hit a lifetime high in anticipation of their addition to the S&P 500 next week closing up six percent at $695 on Friday. Pictured, a Tesla store in Denver, Colorado

Tesla shares hit a lifetime high in anticipation of their addition to the S&P 500 next week closing up six percent at $695 on Friday. Pictured, a Tesla store in Denver, Colorado

About a fifth of Tesla's shares are closely held by its CEO Musk, pictured

About a fifth of Tesla's shares are closely held by its CEO Musk, pictured

Tesla's stock has skyrocketed almost 700 percent year-to-date, putting its value at over $600b. It closed at $695 Friday which was an all-time high for the company

Tesla's stock has skyrocketed almost 700 percent year-to-date, putting its value at over $600b. It closed at $695 Friday which was an all-time high for the company

Its grand entrance was expected to be preceded by a huge trade, with an unprecedented $80 billion of the electric car maker's stock predicted to change hands by the end of the session on Friday so their portfolios correctly reflect the index.   

It would be the largest rebalancing in the history of that index. 

Those funds would simultaneously have to sell other S&P 500 constituents' shares worth the same amount to accomodate Tesla's entry. 

'Index managers will need to sell a large position across the other S&P 500 constituents in order to fund the addition of TSLA, which could lead to substantial impact across the entire index,' Virtu ITG Canada's head of index research, Ivan Cajic, wrote in a report this week.   

In addition, Friday was also quadruple witching day, Wall Street-speak for the quarterly expiration of stock options and futures contracts, which forces traders to tie up loose ends in contracts they hold, leading to particularly heavy trading volume. 


'This is an unusual day because we have Tesla entering the S&P and it´s quadruple witching day,' said Andrew Slimmon, portfolio manager at Morgan Stanley Investment Management. 

Actively managed funds that benchmark their performance against the S&P 500, many of which until now have avoided investing in one of Wall Street's most controversial stocks, were forced this week to decide whether to own Tesla.

While some investors view Musk as a visionary entrepreneur, others worry about missed production targets and corporate governance risk after Musk was forced to step down as chairman to settle fraud charges in 2018.

Tesla's meteoric rise has made it the most valuable auto company in the world despite production that is a fraction of rivals such as Toyota Motor, Volkswagen and General Motors. 

Its stocks have surged roughly 14,000 percent since it went public a decade ago, the New York Times reports. 

Tesla closed Friday on a record high of $695 despite a slight dip before the bell

Tesla closed Friday on a record high of $695 despite a slight dip before the bell

Tesla's stocks have only climbed higher in the days leading up to its S&P inclusion

Tesla's stocks have only climbed higher in the days leading up to its S&P inclusion

According to Forbes, some analysts believe Tesla's shares could rise as high as $780.   

Tesla is by far the most traded stock by value on Wall Street, with $18 billion worth of its shares exchanged on average in each session over the past 12 months, easily beating Apple, in second place with average daily trades of $14 billion, according to Refinitiv.

Apple is currently the largest holding in the S&P 500 with a weight of about 6.5 percent.

Tesla still stands well in front of Ford with 0.12 percent of the index and General Motors with a weight of 0.17 percent.  

Musk's wealth has already more than quadrupled this year from $26.6billion to $149billion. Musk is pictured in 2019

Musk's wealth has already more than quadrupled this year from $26.6billion to $149billion. Musk is pictured in 2019

A blockbuster quarterly report in July - where the company banked $566 million - cleared a major hurdle related to profitability that had prevented Tesla's inclusion in the S&P 500. 

The company has posted four straight quarters of profits despite the pandemic, the main requirement needed in order to be included in the S&P. 

It was aided by its sales of regulatory credits to other automakers how don't yet hit the government requirements for annual production of EV cars.   

About a fifth of Tesla's shares are closely held by Musk, the chief executive, and other insiders. 

His wealth has already swelled since the S&P announcement making him the second richest person in the world worth $149billion.

The 49-year-old began the year worth $26.6billion.  

Since the S&P 500 is weighted by the amount of companies' shares actually available on the stock market, Tesla's influence within the benchmark will be slightly diminished compared to its overall value. 

The stock is now trading at over 170 times the average analyst estimate for Tesla's adjusted net income over the next 12 months, among the highest valuations on Wall Street.

Thirty-five analysts cover Tesla, on average rating it 'hold'. Their median price target is $424.50, which is 35 percent below Tesla's price of $655.90 on Thursday. 

U.S. stock indexes are slipping from their record levels Friday as the wait drags on to see if Congress can reach a deal to send more cash to struggling workers and businesses. Pictured  a New York Stock Exchange trader works on the floor during the Golden Falcon IPO on Friday

U.S. stock indexes are slipping from their record levels Friday as the wait drags on to see if Congress can reach a deal to send more cash to struggling workers and businesses. Pictured  a New York Stock Exchange trader works on the floor during the Golden Falcon IPO on Friday

In general, U.S. stock indexes pulled back from their record levels Friday as the wait drags on to see if Congress can reach a deal to send more cash to struggling workers and businesses. 

The S&P 500 fell 0.4 percent, a day after it and other major indexes returned to record heights. 

Hope that Congress may be nearing a deal to offer more support for the economy helped the S&P 500 post a 1.3 percent gain this week. 

So has enthusiasm about vaccines for COVID-19, which investors hope will get the economy back on the road to normalcy next year.  

The U.S. Congress looked increasingly unlikely on Friday to meet a deadline to agree on $900 billion in fresh COVID-19 aid and instead may pass a third stopgap spending bill to keep the government from shutting down at midnight.

Recent weak economic data has increased pressure on lawmakers to reach a deal. 

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