“Kudos to those who had the wherewithal to embrace the trade and ride it to its conclusion,” said Mike O’Rourke, chief market strategist with JonesTrading, in a report Sunday.
“Tesla’s post-announcement pop may be followed up by a post-inclusion drop,” Bell wrote in a report last week. “In fact, it’s typical for stocks to trail the rest of the market after they’re added to the index.”
Too far too fast?
Tesla’s strong stock performance and huge market valuation (it’s now worth more than $625 billion) meant that the company already was a holding of many large cap mutual funds and ETFs that use the S&P 500 as their benchmark.
So regardless of how the broader market performs over the next few months, some think Tesla is due for a much bigger pullback.
“This boost is just a sugar high,” said David Trainer, CEO of New Constructs, an investment research firm, in a report last week.
“After the rebalancing, we expect profit taking, especially from fund managers who may end up with a larger-than-expected weighting of Tesla in their client’s portfolios because of the S&P 500 inclusion,” he added.
Some analysts worry that investors are discounting the competitive threat in the electric vehicle market that Tesla will face going forward.
CFRA analyst Garrett Nelson downgraded Tesla to a “hold” from a “strong buy” on Friday, saying in a report that “the tailwind of massive index fund buying” is about to subside and that Tesla will “face bona fide competition in the EV space from Lucid, Rivian and others in 2021.”
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