Coinbase, Block and Robinhood meet the criteria for inclusion in the benchmark index. – MarketWatch photo illustration/iStockphoto
The S&P 500 could be getting a slightly fresh look soon with the index’s quarterly rebalance on the horizon.
Based on historical patterns, S&P Dow Jones Indices could announce new entrants to the benchmark large-cap U.S. stock index after Friday’s close. The index provider would then also announce the components set to leave the S&P 500 SPX.
Stocks tend to rise when they are announced as forthcoming S&P 500 constituents, particularly because there are trillions of dollars invested in index funds that track the benchmark.
“It means that those index funds have no choice but to buy the stock that is joining the index. so it’s a clear source of demand over a defined period, from whenever the announcement occurs, to whenever to whenever it transpires,” which is usually a short window, according to Interactive Brokers Chief Strategist Steve Sosnick.
Usually the announced new entrants don’t come as a surprise, because they are buzzy names that just met profitability criteria or are among the largest components by market capitalization of the S&P MidCap 400 Index MID or the S&P Small Cap 600 Index SML. These indexes, along with the S&P 500, make up the S&P Composite 1500 Index XX:SP1500.
“Markets are somewhat efficient,” Sosnick said. “They do tend to anticipate.”
There are various criteria that companies have to meet for initial inclusion in the S&P Composite 1500. These include being domiciled in the U.S. and showing positive combined earnings per share over the past four reported quarters, while also being profitable for the most recent reported quarter. To be included in the S&P 500, companies need a market capitalization of $18 billion or more, but the market-cap thresholds are lower for the other indexes.
Various names have been floated as candidates for S&P 500 inclusion this time around, including financial-technology plays Coinbase Global Inc. COIN and Block Inc. SQ, software company Workday Inc….
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