Expand your active ETF horizons.: With Fidelity Active ETFs, you can have the flexibility needed to adapt and transform based on market conditions with potential tax efficiencies. Learn more here.
The S&P 500 club just announced its newest members.
AppLovin, Robinhood, and Emcor Group are replacing Caesars Entertainment, MarketAxess Holdings, and Enphase Energy in the index’s latest rebalancing, which will go into effect on September 22, according to S&P Global.
The inclusion was a particularly big moment for retail trader favorite Robinhood, which soared 15.83% today. Robinhood investors felt the stock had been unfairly passed over in the index’s previous rebalancing rounds. For example, fintech company Block (formerly Square) was added to the S&P 500 back in July—even though its market cap was about half the size of Robinhood’s at the time.
Who makes the call: Which firms get added and which get passed over for inclusion in the S&P 500 is a tricky dance. Companies must be US-based, have a market cap above $22.7 billion, and be publicly traded (obviously). Beyond that, the committee at S&P Dow Jones has discretion to pick its new members, looking at factors like how sectors are currently weighted in the index, and what a company's balance sheet looks like.
Being added to the S&P 500 often boosts a company’s share price because it’s a signal that its business is booming. More importantly, it also means that a whole bunch of huge, passive funds that mimic the S&P 500 will now have to buy shares of the company in order to accurately reflect the index.
That’s why investors can often feel frustrated when their favorite is excluded. For example, other potential additions such as Strategy (formerly MicroStrategy) and Pinterest sank into the red today after they got snubbed.
What this pivotal moment means for Robinhood
Robinhood went public in summer 2021, shortly after the meme stock craze surrounding GameStop gripped the market. The company embraced the kind of stock-trading gamification that helped create the modern retail investing craze, and its shares have soared over 225% since its IPO. Robinhood has since parlayed its popularity into a whole slew of businesses, including crypto, sports betting, credit cards, and even a foray into wealth management.
“I’ll share what I told the team today—we don’t stop to celebrate, our single focus remains building exceptional products for our customers,” wrote Robinhood CEO Vlad Tenev in response to the news.
Of the analysts covering the stock, 14 give it a “buy” rating, four say “overweight”, eight rate it a “hold”, and one says “sell.”—LB