Palantir Technologies (PLTR) and Dell Technologies (DELL) are set to join the prestigious S&P 500 Index on Friday, marking a significant milestone for both companies. This quarterly rebalancing of the index often leads to increased attention and potential investment opportunities for the newly included stocks. However, the impact on share prices can be unpredictable, as evidenced by Tesla’s experience since its inclusion in 2020.
For Palantir, this marks its first entry into the S&P 500, while Dell is making a return after previously being a member. Inclusion in the S&P 500 can be a game-changer for companies, enhancing their visibility and attracting investors who track the index through various ETFs, like the popular SPDR S&P 500 ETF Trust (SPY).
While a S&P 500 addition often leads to short-term price jumps, the long-term impact can be more nuanced. Many stocks see a surge in share price upon announcement, only to decline after the actual inclusion. This pattern was particularly noticeable with Tesla, one of the most high-profile S&P 500 additions in recent times.
Tesla’s entry into the S&P 500 in December 2020, following a period of profitability and meeting other inclusion criteria, was met with a lot of excitement. The inclusion was so significant that experts debated whether it should be done in two phases due to Tesla’s sheer size. At the time, Tesla held the sixth largest weighting in the index, a position it now occupies at number 11. Despite the initial fanfare, Tesla’s stock performance in the S&P 500 has been underwhelming, with a decline of 46.5% over the past two years, including a significant drop in 2022.
The large weighting and subsequent price decline of Tesla have impacted the overall market index and the ETFs tracking it. Investors who purchased Tesla shares on the day of inclusion might have been better off waiting for the hype to fade and buying at a later date. A $1,000 investment in Tesla on December 21, 2020, would have yielded a 19.3% return to date, while a similar investment in SPY, which tracks the S&P 500, would have generated a 50.7% return over the same period.
Palantir and Dell are currently trading higher year-to-date, with their share prices seeing a spike upon the announcement of their S&P 500 inclusion. However, these gains could be short-lived, and investors should be mindful that the mere inclusion in the index does not guarantee sustained upward movement in share prices.
Jay Woods, Chief Market Strategist at Freedom Capital Markets, cites recent examples of companies that have been added to the S&P 500, highlighting the mixed outcomes. Lululemon Athletica Inc (LULU), added in October 2023, saw a 10% jump on the news but faded after three days. Uber Technologies Inc (UBER), added in December 2023, saw an 8% rise followed by a decline within two weeks. Super Micro Computer Inc (SMCI), with a 27% surge upon announcement, was up only 10% when added officially in March 2024, and has since seen a downward trend.
While Palantir and Dell have seen share price increases since the announcement, Woods anticipates a possible correction before resuming their trends. He acknowledges that some market enthusiasts view S&P 500 inclusion as a curse, pointing to Tesla and Super Micro’s performance. However, he emphasizes that most additions have performed well and resumed normal activity after the initial impact. Only time will tell whether the addition is a positive or negative catalyst for Palantir and Dell, and whether they will follow in Tesla’s footsteps.
Palantir shares traded at $36.25 at the time of writing Friday, up 122.1% year-to-date, within a 52-week range of $13.68 to $37.35. Dell shares traded at $117.06, up 57.5% year-to-date, within a 52-week range of $63.90 to $179.70.
