The Standard & Poor's 500 Index is an ever-changing list. A company can be bought and eliminated. Another might suffer huge losses or fail outright. Obviously there is no reason to keep them.
And the flip side is this: the S&P 500 is supposed to be a list of about 500 stocks.
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So, if one company is eliminated, another joins the club. And the new member's management will most likely want to be in the index because history suggests that inclusion is prestigious and good for the stock.
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A CEO may have more bragging rights if his company enters the Dow Jones Industrial Average. And yes, it's very important to say that your company is a fintech company that is part of the Nasdaq 100 index. Nasdaq will announce its annual reclassification of that index on Friday.
S&P gives and takes away… stocks removed and added to the index
But our mandate here is the S&P 500, whose managers trade stocks in and out throughout the year.
They exchange a stock if a member company no longer meets a key listing requirement. Removal can be quick.
One of the most important requirements is market capitalization. As of April 1, a company must have a market value of $18 billion.
So, on Friday, two actions – Qorvo (QRVO) and Amentum Holdings (AMTM) — that fell short in terms of market capitalization were demoted to the S&P 600 index:
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Replacing them before the market opens on Monday, December 23 will be:
- Private equity firm Apollo Global Management (APO) which has a market capitalization of approximately $100 billion and will rise 91% in 2024.
- work day (Wednesday) a producer of human resources software, which has a market capitalization of $70 billion and is down 3.5%.
Apollo, run by Marc Rowan, specializes in marketing investments in non-traditional vehicles for wealthy investors and also has a large retirement management operation. It was formed in 1990 by three former Drexel Burnham Lambert executives and has since been involved in leveraged buyouts and a number of other financings. It is big, profitable and powerful.
Workday helps businesses automate tasks like payroll, expenses, corporate accounting, and the like.
Qorvo manufactures components for the wireless, wired and electrical markets.
Amentum, which was privately held, merged last summer with two spin-off companies from engineering giant Jacobs Solutions. (j) into a new publicly traded company that kept the Amentum name. The new company, which provides technology services for defense applications, joined the S&P 500 on September 27 and will disappear 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. Outside: Amentum Holdings and Qorvo.
- S&P 400. In: Comerica, Michigan banking company (CMA) and carpenter technology (C.R.S.) a manufacturer of specialty metal products. Outside: Chip maker Vishay Intertechnology (ESR) and children's clothing company Carters Inc. (IRC) .
- S&P 600. In: Qorvo, Amentum Holdings, Vishay and Carters, plus: Terreno Realty (THORN) and champion houses (DARLING) . Outside: Comerica and Carpenter, which move to the Midcap 400 index. Also: Kelly Services (KELYA) Service Property Trust (SVC) Pacific Hudson Properties (hydroelectric power station) and Regenxbio, (RGNX) .
Is it worth all the effort to get into the S&P 500?
Yes, for two reasons:
- The prestige factor and the fact that a company is much more visible to investors and clients.
- The possible 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 send a stock up about 5.8%.
Now it is a much smaller and short-lived blow. A McKinsey & Co. study from December 2004 estimated that the lump disappears after 40 to 50 days. It fades because many investors won't buy shares without serious study of the underlying cash flows and consistency of the company.
More Wall Street analysts:
- Top analysts reveal their S&P 500 forecasts for 2025
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- Google analysts are scared by the surprising news of the breakup
Additionally, access to financial data is much easier for any investor, making it more difficult to make big profits.
Nasdaq-100 Index Reclassification Candidates
Nasdaq Inc. will publish the list of stocks that will enter the index and those that will leave soon. The process is simple and brutal. Eliminate the Nasdaq-100 stocks with the lowest market caps and replace them with stocks with better growth prospects.
stocks believed to be on the Nasdaq short list include: Palantir PLTR, MicroStrategy MSTR, Equinix. (EQIX) CME Group (CME) IBKR Interactive Brokers, Coinbase Global (COIN) Axon Company (AAXN) Nasdaq (SO) Draftkings (DKNG) and Capital Arch (ACGL) .
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