The S&P 500 Is Set For Its Quarterly Refresh — Here’s Why It Matters (And the Names To Watch)

What’s more American than apple pie? The S&P 500, America’s most popular index.

Trillions track the S&P 500, making it the go-to way for Americans to save for retirement, education, or assorted hopes and dreams. It has remained the measuring stick of American capitalism — an absolute slush fund divvied up among the 500 most promising players in the market, served to the public through low-expense ratio ETFs and mutual funds.

Its simplicity is part of its promise to America. But a second factor — adjusting its flavor with the times and tastes of investors — is another major key to its decades of massive growth. This evening, as it does every quarter, the index will announce its latest refresh.

Why does it matter? Each quarter, the S&P 500’s Selection Committee announces additions and removals from the index. The names that make the cut — or get the axe — have always been a topic of speculation. Not just because membership in the index attracts attention and trillions of dollars in investment from S&P-focused ETFs and mutual funds, but also because addition can kick off a significant run-up in new members’ shares: the index effect.

• Recent additions like PalantirPLTR
  and CoinbaseCOIN
  tell the story of how much momentum can come out of inclusion — they both soared after being announced.
• However, 2020 research shows that the index effect has been in a “structural decline,” meaning that not every inclusion to the S&P 500 is bound to see a bump from addition.

Who’s Gonna Make the Cut?

Still, the importance of the index — and the capital and spotlight that come with it — keeps investors and institutions speculating who’s in (and who’s out). Last quarter, businesses could make the ballot by being listed on a major US exchange, having a valuation exceeding $20.5B, and posting four consecutive quarters of GAAP profitability. Predictions are already making the rounds.

• Controversy-addled adtech ApplovinAPP
  and recovering brokerage Interactive BrokersIBKR
  are the most valuable eligible firms — worth $140B and $87B, respectively.
• Bank of America pegged RobinhoodHOOD
  as a “prime candidate” to enter the index, too — citing private equity heavyweight AresARES
  and CarvanaCVNA
  among the contenders.

Plus, another rebalancing in the making: The S&P changes will be the first big makeover of June, with the Russell Reconstitution already underway — with final names for the annual rebalancing expected by Monday.