To list or not to list, Tesla could join the S&P 500?

Market Trends - 22/07/2020

The popular electric car maker Tesla intends to publish its second-quarter outcome today following the close of normal trading while the center of our focus is on the company’s results from the report.

The reason behind that is due to a fourth sequential quarter of related profits from the company that could earn Elon Musk’s electric car company the right to enter the S&P 500 index.

Thoughts have risen concerning the company's intention to strike this breakthrough following a year of recorded profits since the company announced a record number of car shipments earlier in July.

The founder of the company Elon Musk stoked the rumors by sending an email to its workers indicating that there’s a possibility the company will break even for the quarter.

Shares have surged more than 50% for the current month increasing the stock value substantially this year while investors have speculated on the company’s inclusion, which could mean an immediate increase in interest for the popular stock.

However, this is not final yet, anything can change, and even if Tesla does announce a fourth continuous quarter of GAAP gains, it is not confirmed that it will join the S&P 500.

What makes up the S&P 500 is decided by the “Index Committee” at S&P Dow Jones Indices. The addition to the index is based on many factors.

Companies, for example, need be U.S. based and registered on either the NYSE, the Nasdaq, or the Cboe. They additionally need to have a market top of more than $8.2 billion and reach four straight quarters of gain as is defined by the U.S. generally allowed accounting principles (GAAP).

According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, even if a corporation satisfies these standards though, it is not guaranteed that the company will be included in the index. He said.

“The purpose of the index is to emulate the U.S. domestic common market,”  and added, “When you go to put a company in — to actually select it — it’s got to fit into the algorithm in that it represents the market, it has liquidity, it has a size”.

The above content is considered to be market commentary information and shall not be perceived as independent investment research or investment advice.

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