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Monday, November 23, 2020

Tesla stock drops 21% in a single day after not being added to the S&P 500

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Tesla’s stock dropped 21% in a day, but it’s still way up from where it was a year ago.

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The rise in Tesla’s stock price over the past year has been, frankly, a little silly. Shares have ballooned in value by around 300%, and for a long time, it showed no signs of slowing down. 

Well, according to a report published Tuesday by CNBC, Tesla’s stock didn’t just slow down; it hit a wall. Specifically, I mean that Tesla’s stock fell by 21.06%, making Tuesday the worst single-day drop in its (admittedly not-that-long) history. But why? What changed?

The S&P 500 changed, and those changes didn’t include the Big T. See, unlike other indices that rely solely on data, the S&P 500 is determined by committee with adjustments made on a quarterly basis. This time around, people suspected that Tesla might make the list, but it didn’t.

Instead, Standard & Poor’s added online retailer Etsy, pharma company Catalent and test equipment company Teradyne. Now, because of the way that mutual funds work, they have to invest in companies that are part of the list. This causes those companies’ values to go up, which is cool, but because Tesla didn’t get invited to the party, people are a little concerned.

What does this mean for Tesla in the long term? It’s hard to say with confidence, but probably nothing. Also, just because it wasn’t added this time doesn’t mean it’s not going to be included going forward.

Tesla didn’t immediately respond to Roadshow’s request for comment.

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