Tesla begins trading as part of the S&P 500 on December 21

Yahoo Finance’s Emily McCormick joined Yahoo Finance Live to break down if the S&P 500’s addition of Tesla to the index will cause the stock to jump even more.

Video Transcript

SEANA SMITH: Tesla shares are off just around 1% today, but over the past month, it's been a clear winner. Well, it's been a clear winner, I guess you can say, for all of 2020, as you can see here on your screen today with the shares off just around 1% at $632 a share. Now, the rally that we've seen, though, recently comes ahead of the Tesla's inclusion in the S&P. That, of course, takes place next week. Emily McCormick is looking into this for us. And Emily, I think the big question here for investors is they're trying to figure out whether or not this rally that we've seen is going to continue after Tesla is added to the S&P.

EMILY MCCORMICK: That's right, Seana. That is really the question here as we are in the final stretch of trading before Tesla joins the S&P 500. We heard about a month ago that the company was going to be included in the index, and with a market capitalization of more than $600 billion, Tesla is set to be the largest company ever added to the S&P 500 and the sixth largest company in the index, once it's actually added. So that rebalance is set to take place after market close on Friday, and then trading with Tesla in the index will start on Monday after the opening bell.

Now, Tesla is replacing the company, Apartment Investment and Management, in the S&P 500. Inclusion does mean that Tesla will get more exposure to traders invested in index funds that are benchmarked to the S&P 500. And in anticipation of that, that really had catalyzed this rally that we've seen in Tesla so far over the past couple of months. There's more than $4.6 trillion in assets indexed to the S&P 500, so as that company actually gets added, index fund managers are going to need to buy an estimated around $80 billion of Tesla stock and sell as much of that across other stocks already in the S&P 500. And Tesla is set to have a weighting of about 1% in the index.

But again, to your point about where the stock actually goes from here, we heard, of course, from Dan Ives of Wedbush that the China story, the demand that's coming out of that country is going to be a linchpin here for Tesla going forward. The company, of course, opening the Shanghai gigafactory earlier this year and continuing to produce Model 3s in that country. We, of course, have Giga Berlin on the way as well as a factory in Texas. So a number of catalysts here upcoming for the stock. There may be some volatility in the next couple of days ahead of inclusion, but, of course, we are always keeping our eyes on Tesla. Seana.

SEANA SMITH: All right, Emily McCormick, we certainly are. Thanks so much for that.