S&P 500 Changes a Boon for Traders

Stocks that get added to the S&P 500 typically see a strong rally as funds quickly buy up shares, and with turnover on the index expected to increase in the coming weeks, one analyst is offering up some attractive prospects.

When a company is added to the S&P 500, shares usually trade higher on heavier volume. That's because funds like the Vanguard 500, which are designed to track the performance of the S&P 500, are required to invest in all stocks that make up the index. Funds typically use the replication method of indexing, meaning that they attempt to hold the same stocks as the index and in approximately the same proportions.

For instance, Iron Mountain (IRM Quote) shares rallied 13% on Dec. 30 after it was announced the company would be added to the S&P 500. By the time it was officially added to the index on Jan. 5, the stock had jumped 25%. Wynn Resorts (WYNN Quote) jumped 7% a day after the S&P 500 said it would add it to the index. In the week between the announcement it would join the index and its actual addition, Mastercard (MA Quote) shares jumped 13% to $285.47. ...