🗞️The Wrap: Indexed

Tesla is on the verge of S&P500 inclusion, making cash from kicks and the one-stop shop for all charts. Read on.

5 Most Traded

    • Tesla (TSLA) +7.9%
    • Nio (NIO) -0.35%
    • ElectraMeccanica (SOLO) -23.9%
    • Microsoft (MSFT) -1.5%
    • Nikola Corporation (NKLA) +14.2%

Wow. 4 out of the top 5 most traded are electric vehicles manufacturers. Of course, this includes sells.

Indexed 

As Tesla hovers around a US$300b market inclusion in the major indices becomes a logical progression. The S&P500 is more than just a market cap game though. To be included in the index companies must adhere to two requirements.

  • GAAP profit over the past 4 quarters combined.
  • Positive net income in the last quarter.

So far, the last 3 quarters have adhered to the requirements. When Tesla reports earnings next week it’s eligibility will be determined. Early analyst estimates point towards a loss.

So, what can shareholders expect should $TSLA make it into the S&P. You may guess prices tend to rise as large funds are forced to rebalance their books and buy the stock. Or companies become legitimised and investors are more comfortable buying the stock.

Analysis of the issue raised mixed results. National Bureau of Economic Research analysts found that stocks moving into the Russell 2000 had a positive bump in short term returns around May (when inclusion occurs).  On the other hand, research out of the Federal Reserve indicates that this may not be the case. While there is no discernible impact on the price of stocks, their beta does increase i.e. the stock’s correlation with the market. There are actually scores of academic papers on index inclusion and they all return differing insights; well worth a Google search.

When Amazon was added to the S&P500 in 2005 the stock jumped 5%. Check out this WSJ article about it in 2005 when it traded at $44 a share.

Top 5 Gainers

  • National General Holdings (NGHC) +66.1%
  • Jumia Technologies (JMIA) +31.7%
  • Camping World (CWH) +30.9%
  • SunRun (RUN) +12.3%
  • Vivint Solar (VSLR) +28.3%

Top 5 Fallers

  • Mohawk Industries (MHK) -22.7%
  • Avita Therapeutic (RCEL) -20.3%
  • Zymeworks (ZYME) -20.3%
  • Vroom (VRM) -15.2%
  • PagerDuty (PD) -14.6%

Sneaky Gainers

As you are aware by now, Stake and Butter are teaming up to talk all things sneakers and stocks; the similarities and quirks in the two industries. Open to guests from across the world, join our free virtual panel at 6:30 pm AEST on July 21. Book your ticket here.

In anticipation of the event, I did a bit of digging into the sneaker industry. In short, it’s a big-money game. So much so that sneaker investment funds have been popping up around the world over the last few decades.

The premise is quite like all trades- buy low and sell high. Companies like Jordan and Nike release limited runs of sneakers which instantly can sell for a 100-200% markup once stock runs out. Getting your hands on a pair is where the hard work lies.

Small scale funds like Kickstor and Hype Advisor work to secure access to these shoes and then hold them “on their balance sheet” until they feel the resale premium has peaked. It seems like a low-risk game but the market is governed by liquidity.

Sites like Goat and StockX act as exchanges. Bid and Ask prices are quoted on almost every sneaker imaginable. The Off-White Air Jordan 1 edition was traded 2505 times in 2018 on StockX. The average return was 942.1% above retail.

Of course, buying shares in Nike (NKE) is another way to go about it. Or Farfetch (FTCH) who paid US$250m to acquire sneaker reseller Stadium Goods in 2018

Who We’re Following | @Sentimentrader

This Tweeter loves an X and Y axis like few others. Sentimentrader provides some of the most insightful charts around and is on a mission to find the hidden relationships in the market. On Monday, the Nasdaq rallied to a 2% gain before closing 1% down. This chart points out that the only other time this has happened was March 7, 2000, i.e. the peak of the dot-com bubble. Don’t worry stats nerds, they post far better content than rogue correlations with a sample size of 1. Find out for yourself.

A little bonus content: see the face behind The Wrap. I chatted with Stake’s founder, Matt about John Daly, cheap art and of course…stocks. Watch the latest episode of Stocks in Socks here.

Trader Teaser

There are between 500 and 600 students in a school (all socially distanced). When split into groups of 12, 20 or 36, there are 7 students left over. How many students are there?

Best Buy | SHLL

SPACs and EV manufacturers…two of a Stake trader’s favourite. Tortoise Acquisition Corp is set to merge with Hyllion, an electric trucking company next month. $SHLL is up 130% since the move was announced, even touching 300% gains. This trader bought at the bottom and sold for a nice 120% gain.

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