Investors and asset managers expected unusual volatility in the stock market on Friday, especially near the close, in preparation for Tesla’s addition to the S&P 500 early Monday.
All the S&P 500 index mutual funds and ETFs were set to rush in and buy Tesla (TSLA), which will be the largest stock by market capitalization ever to be added to the index.
At $645 per share on Thursday, Tesla was the seventh largest stock by market cap after Apple, Microsoft, Amazon, Facebook and Alphabet’s two share classes, placing just above Berkshire Hathaway B shares (BRK-B).
“This is the largest issue we have ever put into the index and it will disrupt the market the most,” said Howard Silverblatt, senior index analyst, product management, at S&P Dow Jones Indices, which constructs the S&P 500 index, on Thursday.
On Friday, Tesla’s shares closed at $695. This represents a gain of 731% so far this year, reports Bloomberg, which notes that the stock has soared 70% since its inclusion in the S&P was announced in November.
The jump in the share price on Friday pushed Tesla CEO Elon Musk’s net worth up some $9 billion to $167.3 billion, according to the Bloomberg Billionaires Index. Musk’s personal fortune has risen $139.7 billion in 2020.
Index managers were expected to spend approximately $80 billion to buy Tesla shares that day — an “an enormous amount” — and sell shares of other stocks to finance the purchase, explained Silverblatt.
Moreover, it was anticipated that they would be buying shares from hedge funds, other investors and traders who have stockpiled Tesla shares and were looking to get the highest price they can.