Immediate Speculative Fuel: How S&P 500 Inclusion Drives Stock Speculation
The anticipation of S&P 500 inclusion has fueled significant speculative interest in stocks like AppLovin ($APP). Across social media platforms like X (formerly Twitter) and financial articles, this phenomenon has been highlighted as a major catalyst for abnormal returns, commonly referred to as the “S&P Phenomenon.”
The S&P Phenomenon: How It Impacts Stock Prices
When a company is expected to join the S&P 500, the news can create a surge in its stock price. This is largely due to buying activity from index funds and speculative investors positioning ahead of the inclusion. Historical data shows that the announcement often triggers sharp price increases, reflecting the market’s optimism.
$APP stock chart RSI overbought
Evidence from Social Media
Posts on X provide direct evidence of the impact of S&P 500 inclusion on stock performance. Stocks like Tesla ($TSLA) and Workday ($WDAY) have demonstrated substantial price movements upon inclusion or anticipation of inclusion. For AppLovin, however, the failure to secure inclusion led to a sharp bearish reaction, reflecting just how much of the stock’s speculative value was tied to this expectation.
Quantifying the Impact
Historical Returns
Studies, including those from McKinsey & Company and the Federal Reserve, reveal that stocks added to the S&P 500 see average returns of 4.34% from the announcement to the effective inclusion date, with total returns often reaching 6%. AppLovin’s pre-announcement surge exceeded these averages, driven by speculative enthusiasm.
Post-Exclusion Reaction
AppLovin’s stock dropped nearly 7% in after-hours trading following news of its non-inclusion. This immediate reaction quantifies how much of the speculative bubble was fueled by S&P 500 inclusion expectations.
Long-Term vs. Short-Term Speculation
While the short-term speculative future for AppLovin was tied heavily to S&P 500 inclusion, its long-term value hinges on business fundamentals. Factors like revenue growth, profitability, and market conditions will ultimately determine its performance. However, the immediate reaction underscores the powerful influence of speculative expectations on short-term market dynamics.
Conclusion: Lessons from AppLovin’s Speculative Ride
From the available data, it’s clear that a considerable amount of AppLovin’s speculative future was fueled by the anticipation of S&P 500 inclusion. While exact percentages are hard to quantify, the rapid price movements following both the anticipation and the news of non-inclusion indicate that this factor was substantial. The speculative interest was likely heightened by the prestige and increased demand from passive investment vehicles that come with S&P 500 membership. However, with the news of non-inclusion, the market quickly adjusted, reflecting how much of the speculative fervor was indeed tied to this event. The fact that this stock carrys an RSI of greater than 90 on both the monthly and weekly charts speaks volumes as to the speculative furver. The after hours drop after the announce of AppLovin’s failed inclusion into the S&P 500 of 7% is just a hint of how rapidly these shares can fall in the coming days. We view this as an opportunity to book profits on this stock as is reverts to the mean.
