Rear-View Mirror

With the Presidential election in the rear-view mirror and positive vaccine news, November gave us a glimpse of what the end of COVID-19 could look like. The S&P 500 index posted its best November in history, up 10.9% while the NASDAQ Composite added 11.9% and the small-cap Russell 2000 index soared 18.4%.

In December, the market has managed to extend its lead in the face of rising cases and some disappointing economic data. While the market looks extended and poised to consolidate, I offer one reason while the S&P 500 is at an all-time high: Tesla.

Love it or hate it (the car, the stock or the CEO), Tesla will be the biggest company ever added to the S&P 500 index on December 21st. At current prices, the market capitalization of Tesla stands at $616 billion and will be the 6th largest company in the index, ahead of Johnson and Johnson and Berkshire Hathaway. According to Bloomberg, the index may be set to undergo its largest rebalance on record because of the number of potential changes associated with the inclusion of Tesla and some newly stated market-cap threshold for new entrants.

As the chart below shows, since the announcement, Tesla’s stock has soared to about 59% while the S&P 500 index is up about 2.2%.

Chart, line chart

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Given over $4.5 trillion is invested in index funds, the December 21st rebalance could become one of the largest, in terms of number and market-cap impact. Could it be investors are being set up into a classic “Buy-the-rumor, sell-the-news?”

While I can’t speak for the cars, I am captivated every time I see a SpaceX launch. And given the latest news of Elon Musk moving to Texas, all I can say is “What took you so long?”

Lastly, given my previous discords about active decisions driving passive benchmarks, I want to give you another data point to ponder. On August 24, the S&P Dow Jones Indices announced it was kicking Exxon Mobil out of the Dow Jones Industrial Average. Since that time, Exxon is up almost 6% while the Dow is up about 7.5%…time will only tell…

If you have any questions or want to have a conversation about the market or your portfolio, please contact Liz, Ed, Fred, Scott, Tyler, or myself. Your Sendero team is ready to help. 

Best Regards,
Amaury de Barros Conti