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Uber stock (UBER) finished the day 2.2% up on Monday after news crossed late Friday that the company would be joining the S&P 500.
The mechanics behind this move aren't hard to sort out — with over $7 trillion tracking the index, there are a large number of forced buyers of the stock, namely the fund sponsors offering investors ETFs, mutual funds, or other products that seek to match the S&P 500.
In a note to clients on Monday, Jefferies analyst John Colantuoni noted the average jump in shares of a company added to the S&P 500 has been 6.3% from the close before the announcement to the open the next day, and 11.2% between the announcement and when shares joined in the index. Early on Monday, Uber stock gained as much as 6%.
Joining an index that, in S&P's own words, is "considered to be a proxy of the U.S. equity market" means that when the public refers to "the stock market" going forward, they will now be referring to a group that includes Uber.
And as ever, these shifts are a reminder that investors buying ETFs, mutual funds, or other products that track the S&P 500 aren't being as passive as the moniker "passive investing" implies.
Read more: How to start investing: A step-by-step guide
As TKer's Sam Ro has chronicled, there have been more than 700 changes to the S&P 500 since 1995. In other words, more than all of the members of the index have turned over since the end of the first Clinton administration.
But with this year's market rally being defined by the "Magnificent Seven" stocks — which alongside Microsoft include Apple (AAPL), Alphabet (GOOGL, GOOG), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) — it's worth noting how recently some of these market leaders have been added to the index.
Over the years, many investors "passively" buying funds tracking the S&P 500 have likely been doing so in an effort to stay away from the investing fads of the day. But trends are different than fads.
Alongside Uber, manufacturers Jabil (JBL) and Builders FirstSource (BLDR) will also join the S&P 500, effective Dec. 18, with this group replacing Sealed Air (SEE), Alaska Air (ALK), and SolarEdge (SEDG), respectively. These new entrants will replace companies that had been members of the index since 1957 (the very beginning), 2016, and 2021, respectively.
And there's plenty of signal in these changes — US manufacturing is making a comeback and few services have redefined modern life quite like ridesharing services. Meanwhile, packaging demand has waned post-pandemic, the airline industry is consolidating, and green energy initiatives continue to get pinched.
As Hamish Preston, head of US equities at S&P Dow Jones Indices, noted earlier this year, most of the turnover in the index comes from events, rather than scheduled rebalances.
The dynamism of the index means buying the S&P 500 gets you a piece of every good, bad, or indifferent development currently coursing through the market.
But for most investors, the split between "passive" versus "active" investing is less about what you own and more about what you pay for it. And on this front, there's little confusion about what choice people are making and why.