S&P 500 passes on including Tesla; instead adds Etsy and two others

The S&P 500 Index Committee decides to include Etsy, Teradyne, and Catalent into the S&P 500 index, passing on Tesla’s inclusion. It was widely speculated that the Musk-founded electric automaker would be included after the stock’s massive rally this year. Tesla shares dropped more than 7% after hours on Friday after the decision by the committee was announced, CNBC reports.

Tesla reported its fourth month of profitability in July, raising expectations that the company will be included in the index. The basic requirements to be included is for a company to be US-based and be listed on the NYSE, NASDAQ, or the Cboe. Companies also must have a market cap of more than $8.2 billion and must have reported four straight quarters of profitability, determined by U.S. GAAP.

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The “Index Committee” at S&P Dow Jones Indices bases inclusion based on these quantiotative and qualititive factors. Even if a company meets all requirements, it is ultimately up to the committee to include it in the index. The committee meets every quarter to rebalance the index, adding and removing companies from the S&P at any time.

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The committee’s process is heavily guarded due to the high-profile nature and effect of its decision. Even companies get no prior warning before being included. On Friday, the S&P 500 Index Committee decided to include Etsy, Teradyne, and Catalent to the S&P 500 index.

Etsy is an e-commerce marketplace for artisans to sell vintage items and craft supplies. Teradyne is a commercial supplier, providing companies with automatic testing equipment. Catalent is a pharma company, providing consumer health products, delivery technologies, drug manufacturing, and gene therapies.

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It is speculated that the volatile nature of Tesla’s stock over the past year led the committee to passing on, including the automaker in the index.

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