You’re not the only one craving an autumn makeover.
Like switching out bathing suits for flannel, S&P Dow Jones Indices is elevating some companies to join the 500 club, while others are getting booted.
The index provider is adding software firm Palantir Technologies, tech company Dell, and insurance giant Erie Indemnity. Those companies will be replacing American Airlines, Etsy, and Bio-Rad Laboratories. The changes will take effect Monday, Sept. 23, S&P Dow Jones Indices said in a statement.
Palantir shares soared 14.08%, while Dell jumped 3.81%, while Erie shares popped before dropping 0.61% by the end of the day. On the flip side, shares of companies dropping out tend to fall, though American Airlines actually rose over 3% today. But Etsy fell 1.58%, while Bio-Rad dropped 2.01%.
While a company’s addition to the S&P 500 is a testament to its growth, investors are also anticipating a huge boon to the new member’s stocks when funds that track the S&P 500 buy shares of the newly added company. And passive ETFs are a lucrative customer: There’s $11.4 trillion in funds benchmarked by the S&P 500, and the new stocks will get a piece of that massive pie.
How exclusive is it, really?
Companies in the index should be US-based, profitable, and have a market value of at least $12.7 billion to be included. While the S&P 500 roughly tracks the largest US companies, S&P Dow Jones Indices doesn’t immediately add a new company once it crosses the top 500 threshold, so it can be an imperfect delineation.
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And some prior qualifications meant that there were a few obvious behemoths not included in the index. Dell, which was previously the largest US company by market cap not included in the S&P 500 until now, was barred from inclusion for years because of a rule prohibiting companies with multiple share classes, but that was overturned. Dell was previously included in the index between 1996 and 2013, until Michael Dell took the firm private in 2013. Dell went public again in 2018.
While having a market cap that puts it among the top 500 largest companies is a pretty strong indicator a firm will eventually be added to the index, it can be harder to predict exactly who will be next in line before it’s announced. For example, KKR and CrowdStrike, which were added to the S&P 500 in June, skipped inclusion in the S&P MidCap 400 and went straight to the majors. Coinbase, Snowflake, Workday, and DoorDash are a few other firms analysts believe could be added next.
After the S&P 500 had its worst week of 2024 last week, maybe a fresh look is just what it needs.—LB
