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December 18, 2020 at 09:58 PM
Traders spent most of the year pushing up shares of Tesla Inc. in anticipation of surging demand from index funds when it entered the S&P 500. That trade had its climax Friday, as frantic purchases by passive managers drove the shares almost 5% higher just as markets closed.
Mechanical buying by index-tracking funds sent Tesla to a record $695 in the auction used by exchanges to finish trading, about $25 above its average price Friday. At the end of the day, Tesla shares closed at an all-time high.
More than 69 million shares traded in the electronically managed closing print, a key price that will act as a starting point for passive funds that track the S&P 500.
It came on a day of extreme volume for the electric vehicle maker, which will enter the storied equity benchmark on Monday. Almost 200 million Tesla shares changed hands in the regular session.
See: What Happens When Tesla Joins the S&P 500?
While Tesla’s gyrations looked violent on price screens, especially as the close drew near, they were fairly standard for a stock in the process of being added to an index, said Larry Weiss, head of equity trading at Instinet LLC in New York.
“The chart is not atypical,” said Weiss. “Given the size of the index trade, and the notional risk of the add, you would expect an outsized move.”
As of Friday’s close, Tesla shares are up 730% this year. The S&P Dow Jones Indices committee announced Tesla would be added to the S&P 500 in November, and shares have surged around 70% since.
About $11 trillion of investment assets are either tied or benchmarked to the S&P 500, and for months investors and index fund managers have been anticipating this day, gaming out the best ways to handle the trade.
