TLDR
- Robinhood and AppLovin stocks fell 5.5% and 5.2% respectively after missing out on S&P 500 inclusion
- S&P Dow Jones Indices announced no changes to the S&P 500 in its quarterly rebalancing on Friday
- Both stocks had risen last week on speculation they would join the index (Robinhood up 13%, AppLovin up 6.3%)
- Other potential candidates like Cheniere Energy and Interactive Brokers also saw stock declines
- S&P 500 inclusion requires at least $20.5 billion market value and profitability in recent quarters
Robinhood Markets and AppLovin saw their stock prices fall on Monday morning after failing to gain entry into the S&P 500 index. The trading platform’s shares dropped 5.5% to $70.77, while the advertising technology company declined 5.2% to $395.98 in premarket trading.
S&P Dow Jones Indices announced Friday that the S&P 500 would remain unchanged in its quarterly rebalancing. The decision disappointed investors who had bet on these companies joining the prestigious index of America’s 500 largest publicly traded companies.
Multiple analysts and media outlets had identified Robinhood as a strong candidate for inclusion before the announcement. Barron’s had also highlighted AppLovin, Cheniere Energy, and Interactive Brokers as potential new members alongside Robinhood.
The speculation had driven both stocks higher last week. Robinhood climbed 13% while AppLovin gained 6.3% as investors positioned themselves for potential index inclusion.
Other companies that missed out also saw their shares decline Monday. Cheniere Energy fell 2.1% and Interactive Brokers dropped 1.9% in early trading.
Bloomberg Intelligence analyst Wendy Soong had previously listed AppLovin, Robinhood, Cheniere, Veeva Systems, and Vertiv as potential S&P 500 additions. None of these companies made the cut in the latest rebalancing.
Index Inclusion Requirements
Companies must meet specific criteria to join the S&P 500 index. They need a market value of at least $20.5 billion and must show profitability for the last four quarters combined and in the most recent quarter.
The final decision rests with S&P Dow Jones Indices, which has discretion over membership. The index tracks companies by market capitalization and serves as a benchmark for the broader U.S. stock market.
Impact on Stock Prices
Index inclusion often provides a boost to stock prices, at least temporarily. This happens because many index funds automatically invest in S&P 500 companies, creating immediate buying pressure.
Passive investment funds must adjust their portfolios to match the index composition. When companies join the index, these funds buy shares, typically driving prices higher.
The opposite effect occurs when companies are removed from the index. Passive investors must sell their holdings, which can pressure stock prices downward.
The S&P 500 futures were up 0.1% on Monday morning despite the individual stock declines. The broader market appeared unaffected by the rebalancing results.
Both Robinhood and AppLovin remain eligible for future consideration as the S&P reviews membership quarterly. Their market capitalizations and financial performance will continue to be evaluated for potential inclusion.
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