The U.S. stock market continues its incredible performance as the big tech companies defy the pandemic. With the Q2 earnings season almost finished, most of the companies have beaten expectations, fueling the rally further.
Tesla, one of the strongest performers, surged beyond $2,000 for the first time in history. The stellar rise is fueled by a combination of investors’ optimism about the company’s future financial performance, the possible inclusion in the S&P500 and a new have of retail traders that discover the stock market for the first time.
Record Highs for Tesla Despite Stock Split Announcement
The surge above the $2,000 level comes at the time when the company announced a 1-5 split at the end of August. In other words, beginning September 1st, each investor will receive five shares for one share owned. The idea behind stock splits is to make the shares more accessible to retail investors, even though fractional investing solved for that issue recently.
However, stock split announcements typically have a negative effect on a company’s stock – not this time. In fact, since Tesla announced the stock split, the company surged almost every day.
Something else drives the Tesla price higher, and one explanation could be the possible S&P500 inclusion. At the current prices, Tesla is the largest company by market capitalization that is not included in the S&P500, yet it meets the eligibility criteria. The inclusion, if and when it happens, forces passive managers to buy Tesla shares to mirror the index. Hence, the currency frenzy behind the company’s stock price may be fueled by retail traders’ enthusiasm in anticipation of the future S&P500 inclusion.
With cheap money flooding the market as the Fed keeps the easing conditions, the chances are that the market will rise even more. Nasdaq100 already made new all-time highs during the pandemic. If companies like Tesla continue to outperform, expect the stock market’s rally to continue.