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 the 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, leading the price of HOOD shares to soar nearly 16% in a day.
The company’s CEO, Vlad Tenev, was quick to issue a statement (“It’s an exciting milestone to have Robinhood join the storied S&P 500 Index”). But the company confirmed that Tenev found out about the news like everyone else—from an S&P press release that, on days when one goes out, always lands at 5:15 p.m. ET, but whose content is otherwise unpredictable.
The pop in Robinhood’s stock was akin to what happened to that of the 10 other companies—including DoorDash, Coinbase, and analytics service AppLovin—that have joined the S&P 500 so far this year as part of what the index-maker calls its effort to “rebalance” the list.
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. Rather, 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.
