"When a company's share price suddenly jumps, it's usually in response to announcements-like a merger or a great earnings release-that top executives have prepared for weeks. Sometimes, though, the good news comes out of the blue and is as much of a surprise to the CEO as it is to the rest of market. That's what happened last month, when S&P Dow Jones announced that the financial platform Robinhood would be joining its all-important index of 500 leading U.S. companies,"
"The reason for the price jumps is easy to discern. It's not simply the prestige of being placed on a list of 500 iconic companies. Instead, it is because a large number of ETFs and institutional investors automatically add new entrants to their portfolios shortly after the chosen companies are announced, scooping up millions and millions of shares in the process."
"The more interesting question is instead how S&P Dow Jones compiles the list in the first place. If anyone is in position to answer questions about the process, it is Howard Silverblatt. The senior index analyst has worked at S&P Dow Jones for 49 years, and has seen successive waves of companies and sectors arrive and exit from the list."
Sudden share-price jumps often follow planned announcements like mergers or strong earnings, but can also surprise executives when news arrives unexpectedly. S&P Dow Jones added Robinhood to the S&P 500, sending HOOD shares up nearly 16% in one day, and the CEO learned of the inclusion via S&P's standard 5:15 p.m. ET press release. Similar one-day pops occurred for other companies added during the index rebalance, including DoorDash, Coinbase, and AppLovin. The price surges largely stem from ETFs and institutional investors that automatically add new index entrants, buying millions of shares. Howard Silverblatt, a long-serving senior index analyst, has observed many sector shifts over his 49-year tenure.
Read at Fortune
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