What Happens When a Company Joins or Leaves the S&P 500?

A company can make the S&P 500 and see its stock move before it has spent a single day in the index. Another can be removed and face selling from funds that track it. The announcement is only the start: there is usually a gap before the change takes effect, and plenty can happen to the share price in between. 

So, what changes for the company, its shareholders, and traders watching the event?

How Do Companies Join or Leave the S&P 500?

Being one of the largest US companies is only part of the picture. To be considered for the S&P 500, a company must meet requirements for size, publicly available shares, trading activity, and profitability. An S&P Dow Jones Indices committee then selects companies that help the index reflect the large US stock market. Qualifying for consideration does not guarantee a place.

Companies leave the S&P 500 for different reasons. An acquisition may take a stock off the market, while a company that has become smaller may move to the S&P MidCap 400 or SmallCap 600. Falling below a requirement for new entrants does not automatically remove an existing member. The committee reviews changes as needed and generally avoids unnecessary turnover.

The index updates company weights each quarter, but additions and removals can happen at other times. When S&P announces a change, it also gives the date it will take effect. Trading interest builds in the period between those two dates.

What Happens to a Stock When It Joins the S&P 500?

Once a company is added, funds that track the S&P 500 need to hold it in line with its weight in the index. A larger company generally gets a larger weight, so its addition can require more trading than that of a smaller entrant.

For a simple example, if a stock receives a 0.2% index weight, a $10 billion fund tracking the S&P 500 would aim for about $20 million of exposure to it. The fund might already own some shares, and its purchases may be spread across the period before the change takes effect. The example shows the scale of the adjustment, not the amount of new buying that will occur on one day.

Other investors may buy after the announcement because they expect that fund demand. This can lift trading volume and move the price well before the stock officially enters the index. By the effective date, some of the expected buying may already be reflected in the share price.

Inclusion can bring a company more attention and a broader base of shareholders, but it does not change its sales or profits overnight. That is why a stock can rise on the announcement and still trade lower after joining.

What Happens When a Stock Is Removed?

When a company leaves the S&P 500, funds that track the index need to remove it from their portfolios. That can create selling pressure between the announcement and the effective date, particularly as funds make their final adjustments. The share price may react as soon as the news is announced, so the selling is not necessarily concentrated on the day the stock leaves.

The reason for removal matters. A company being acquired is a different case from one whose market value has fallen. Some companies move into the S&P MidCap 400 or SmallCap 600, where funds tracking those indexes may need to buy their shares. That new demand can partly offset selling by S&P 500 funds.

Removal also does not mean an investor’s shares disappear or that the company has stopped trading. In most cases, shareholders still own the same stock. For traders, the useful question is whether the price move reflects temporary changes in fund holdings, a change in the company’s prospects, or both.

Before and After the Change: The Dates That Matter

An S&P 500 change has two dates to watch: the announcement date and the effective date. They can be days or weeks apart. The stock may move through that gap as investors react and funds prepare to adjust their holdings

 

Suppose an addition takes effect before Monday’s open. Friday’s closing auction may be the main moment for funds completing their adjustment. Tesla’s December 2020 entry showed how large that moment can become: Nasdaq reported that about 69 million Tesla shares, worth roughly $50 billion, traded in its closing auction ahead of the change. That was an exceptional case, but it makes the timing clear. The most important trading session may come before the company’s first day in the index.

Well-Known S&P 500 Additions and Removals

Tesla: An unusually large addition

When S&P announced Tesla’s entry in November 2020, the company was already one of the largest in the US. Funds tracking the index had a sizeable adjustment to make before Tesla joined on December 21. At the preceding Friday close, roughly 69 million Tesla shares traded in Nasdaq’s closing auction. Tesla’s stock then fell on its first day in the index. Even when fund demand is substantial, much of the price move can happen before the company officially joins.

Uber: The gap between announcement and entry

On December 1, 2023, S&P announced that Uber would join the index before the market opened on December 18. That gave investors and index funds more than two weeks to respond. It is a useful reminder that an addition is rarely a surprise saved for the effective date. By the time a company officially joins, the market has already had time to trade the news.

American Airlines and Etsy: Leaving for another index

American Airlines and Etsy left the S&P 500 in September 2024, but neither vanished from S&P’s indexes. American Airlines moved to the S&P MidCap 400, while Etsy moved to the S&P SmallCap 600. For anyone assessing a removal, the destination matters: S&P 500 funds may sell, while funds tracking the company’s new index may buy.

FAQs About S&P 500 Additions and Removals

Does S&P 500 Inclusion Lead to Better Returns?

It can bring buying interest, but it does not guarantee better returns. Investors often react before the effective date, leaving less room for a further rise once the company joins. Research also finds that the average price effect of S&P 500 additions has become much smaller over time. Longer-term returns still depend on the company, and the price investors pay for its shares.

Does the Company Receive Money When Index Funds Buy Its Stock?

Usually, no. Index funds generally buy existing shares from other investors on the market. The company receives money only if it separately issues new shares.

Can a Removed Company Rejoin the S&P 500?

Yes, if it later qualifies and the index committee selects it. Removal is not necessarily permanent, although a recovery in the share price alone does not guarantee a return.

Does Adding a Large Company Make the S&P 500 Jump?

No. The index calculation is adjusted when constituents change so that adding or removing a company does not, by itself, create a sudden jump in the index level. Its share price movements can affect the index after it joins.