History Says Being Added to S&P 500 Will Have This Impact on Palantir Stock
There was plenty of excitement around the news that Palantir Technologies (NYSE: PLTR) would be added to the S&P 500 index. The index is widely viewed as the benchmark for U.S. stocks and there is an enormous amount of investor money tied to the index because so many exchange-traded funds (ETFs) and mutual funds track/mimic its performance.
Not surprisingly, when there is an announcement that a stock will be added to the S&P 500, it tends to see a nice jump in its share price. The reason is quite simple: S&P 500 index fund managers must now all buy the stock, which raises interest and helps push the stock price higher. Palantir stock, for instance, rose over 13% in the trading session after the news was announced. It will officially be added to the index on Sept. 23.
According to a study conducted by S&P Global, stocks added to the S&P 500 between 1995 and 1999 outperformed the index by 8.3 percentage points between the announcement date and the effective date, while stocks added to the index between 2000 and 2010 saw an excess return of 3.6 percentage points during this period. This outperformance has been referred to as "the index effect." Likewise, removal from the index has been shown to have a negative effect on a stock's performance, although the performance effect of deletion also matters less these days than it used to.
Source Fool.com
