Tesla Joins the S&P 500 as the Coronavirus Pandemic Surges and the Economy Slows

Another milestone is coming for the stock market today as Tesla joins the world’s most important index.

TSLA is the biggest company ever added to the S&P 500, and will rank No. 5 by market cap. It will join consumer-discretionary sector, along with (AMZN) and automakers like General Motors (GM) and Ford Motor (F).

Elon Musk’s electric-vehicle firm surged 14 percent last week ahead of its inclusion in the index. Every $11.11 that TSLA fluctuates will move the benchmark by 1 point, according to S&P analyst Howard Silverblatt. He also said it will increase the S&P 500’s price/earnings ratio from 22.3 times to 22.6 times.

S&P 500 Closes Above 3700

The S&P 500 rose 1.25 percent between Friday, December 11, and Friday, December 18. It was the third gain in the last four weeks, landing the index above 3,700 for the first time ever.

Even with broader market continuing to advance, sentiment seemed to shift away from the “reopening” trade. Stocks like energy and financials rallied in November on hopes of coronavirus vaccines ending the pandemic. But now they’re stalling as infections soar to new records and the economic data weakens.

Investors instead returned to software, technology and the biotechnology. Those stocks are less susceptible to the lockdowns, and in some cases benefit from more remote work. Precious metals, another hedge against recession, had their best week since the start of November.

S&P 500, daily chart, highlighting 3,700 level.

Economy Weakens

Last week’s economic numbers worsened sharply as coronavirus slammed business again. Initial jobless claims, the fast-moving measure of employment trends, hit their worst reading in 16 weeks. Up-to-date manufacturing surveys showed orders plunging as factories struggled to resume production amid the pandemic. Retail sales also suffered.

The Federal Reserve responded by promising to buy more bonds to support the U.S. economy.

The Asia-Pacific region showed improvement. Chinese industrial production and retail sales were strong. Australian unemployment and leading indicators surprised in a positive direction. New Zealand raised its GDP estimate.

That combination of domestic weakness and global strength dragged the U.S. dollar to its lowest level in 2-1/2 years.

Sector Changes Last Week
Technology +3.2%
Consumer Discretionary +2.4%
Materials +1.9%
Healthcare +1.2%
Consumer Staples +0.9%
Real Estate Investment Trusts +0.5%
Communications +0.3%
Financials +0.1%
Utilities +0.1%
Industrials +0.1%
Energy -4.2%

Bitcoin Breaks Out

A weak dollar usually drives investors to precious metals. Last week, they also targeted Bitcoin as currency hedge.

The cryptocurrency broke above $20,000 for the first time ever before the Fed meeting. By Saturday, it was over $24,000. Litecoin and Bitcoin Cash rallied even more.

Christmas This Week

This week could have a couple of active trading days before the market grows quiet for the holidays.

Tomorrow’s consumer-confidence number could be important, potentially showing how much Americans are worried about the coronavirus resurgence. Existing home sales are also due.

Wednesday features jobless claims, one day earlier than usual because of Christmas. Durable-goods orders, personal income and spending, new home sales, crude oil inventories and revised consumer sentiment are also due.

The market closes early, at 1 p.m. ET on Thursday, and remains closed for Christmas on Friday.

This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 21/12/2020.

David Russell
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.

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