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Tesla Tanks After S&P 500 Snub. Why It Was Shunned

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Snub is a harsh word, but that's precisely what Tesla  (TSLA) - Get Free Report got from the powers that be over at S&P Indices on Friday, when they revealed that the electric car maker didn't make the cut into its venerable S&P 500 index.

Indeed, investors shunned Tesla on Tuesday, extending losses incurred last week, after the company was not included in the S&P 500, despite expectations that four consecutive quarters of positive earnings would make it a shoo-in.

Tesla has been a standout performer in the U.S. stock market this year, soaring close to 400% through Friday’s close, the second-best performance in the Nasdaq 100 Index behind Zoom Video Communications (ZM) - Get Report.

While the carmaker reported its fourth quarterly profit in July and its much-hyped “Battery Day” event has also boosted investor optimism, at least some of the wind behind Tesla's tail lights has been the potential for S&P 500 inclusion itself – a move that would automatically force exchange-traded funds (ETFs) and other index-tracking funds to buy Tesla stock, boosting the shares further.

While Tesla's most recent quarterly numbers made it eligible to be included in the index, the challenges of adding a firm with such a large market-cap, which has mushroomed to $390 billion as of Friday, is likely part of the reason S&P Dow Jones took a pass this time around.

Meantime, Tesla shares entered correction territory last week, following news of the company’s largest shareholder after Musk cutting its stake, as well as the market slowly digesting Tesla’s plan to sell as much as $5 billion additional shares. That followed the company's announced 5-to-1 split of its stock, which took effect last Monday.

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