The Standard & Poor’s 500 Index is a constantly changing list. A company might get bought out and is deleted. Another might get hit with big losses or fail outright. No reason to keep them, obviously.
And the flip side is this: The S&P 500 is supposed to be a list of some 500 stocks.
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So if a company is cut, another joins the club. And the odds are that the management of the new member wants to be in the index because history suggests that inclusion is prestigious and good for stocks.
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A CEO may get more bragging rights if his company goes into the Dow Jones Industrial Average. And, yes, it is a big deal to say your company is a hot tech company that’s a component of the Nasdaq 100 Index. Nasdaq will announce its annual reranking of that index on Friday.
S&P giveth and taketh away… stocks being removed and added to the index
But our brief here is the S&P 500, the managers of which swap stocks in and out throughout the year.
They switch out a stock if a member company no longer meets a key listing requirement. The removal can be quick.
One of the most important requirements is market capitalization. As of April 1, a company needs to hold an $18 billion market value.
So on Friday, two stocks — Qorvo (QRVO) and Amentum Holdings (AMTM) — that came up short on market cap were demoted to the S&P 600 index:
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Replacing them before the market open on Monday, Dec. 23, will be:
- The private-equity firm Apollo Global Management (APO) , which has a market cap of roughly $100 billion and is up 91% in 2024.
- Workday (WDAY) , a producer of human-resources software, which has a market cap of $70 billion and is down 3.5%.
Apollo, led by Marc Rowan, specializes in marketing investments in non-traditional vehicles to wealthy investors and has a big retirement management operation as well. It was formed in 1990 by three former executives from Drexel Burnham Lambert and has been involved in leveraged buyouts and a host of other financings ever since. It is big, profitable and powerful.
Workday helps companies automate tasks like payroll, expenses, corporate ledgers and the like.
Qorvo makes components for the wireless, wired and power markets.
Amentum, which had been privately held, last summer merged with two businesses spun out of engineering giant Jacobs Solutions (J) into a new publicly traded company that kept the Amentum name. The new company, which provides tech services for defense applications, joined the S&P 500 on Sept. 27 and will be gone three months later.
So, when all is said and done, here’s how the S&P 500, S&P Midcap 400 and S&P SmallCap 600 will be affected.
- S&P 500. In: Apollo Global and Workday. Out: Amentum Holdings and Qorvo.
- S&P 400. In: Michigan banking company Comerica (CMA) and Carpenter Technology (CRS) , a fabricator of specialty metal products. Out: Chipmaker Vishay Intertechnology (VSH) and childrens apparel company Carters Inc. (CRI) .
- S&P 600. In: Qorvo, Amentum Holdings, Vishay and Carters, plus: Terreno Realty (TRNO) and Champion Homes (SKY) . Out: Comerica and Carpenter, which move to the Midcap 400 Index. Also: Kelly Services (KELYA) , Service Properties Trust (SVC) , Hudson Pacific Properties (HPP) and Regenxbio, (RGNX) .
Is getting into the S&P 500 worth all the effort?
Yes, for two reasons:
- The prestige factor and the fact a company is much more visible to investors and customers.
- The potential stock-price effect.
The stock-price effect used to be pronounced. In the 1990s, according to some studies, the announcement that a company was joining the S&P 500 could push a stock up some 5.8%.
It’s a much smaller bump now, and it is short-lived. A December 2004 McKinsey & Co. study estimated that the bump fades after 40 to 50 days. It fades because so many investors won’t buy a stock without a serious study of the company’s underlying cash flows and consistency.
More Wall Street Analysts:
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Also, access to financial data is so much easier for any investor that big gains are harder to get.
Nasdaq-100 Index reranking candidates
Nasdaq Inc. will be releasing the list of stocks coming into the index and those departing soon. Process is simple and brutal. Knock off the Nasdaq-100 stocks with the lowest market caps and replace them with stocks with better growth prospects.
Among the stocks thought to be on Nasdaq’s shortlist include: Palantir PLTR, MicroStrategy MSTR, Equinix (EQIX) , CME Group (CME) , Interactive Brokers IBKR, Coinbase Global (COIN) , Axon Enterprise (AAXN) , Nasdaq (NDAQ) , Draftkings (DKNG) and Arch Capital (ACGL) .
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