500 Club

The S&P 500 might be the most-watched stock index in the world. An exclusive club reserved for America’s corporate elite where entry isn’t handed out lightly. To get in? Firms need to have a market cap of at least US$22.7b, clean financials and enough daily trading volume to keep the ETF machines humming.

And getting in matters. Once added, these index-tracking funds start buying the stock. That means instant demand, a surge of passive capital and, sometimes, a nice little bump in share price. 

The latest inclusions prove the impact of the ‘index effect’: Robinhood ($HOOD) and AppLovin ($APP) soared on Monday after joining the elite. 

These popular stocks outshone Emcor ($EMC) – another firm marking its S&P 500 arrival. Of course, a mechanical construction firm like $EMC doesn’t come with the same buzz as tech stocks.

But that’s also why some analysts question if markets are rewarding style over substance. With a forward PE ratio of around 65, $HOOD is trading at quite the premium. As is $APP, currently trading at around 55x forward earnings.

Investors might be reassured that the party is still going for one 2024 inclusion with a much steeper valuation. Palantir ($PLTR) entered the index last September, has since rallied 350% and now trades at 347x forward earnings.

Not everyone makes it past the velvet rope. Strategy ($MSTR) ticked all the boxes for inclusion but was denied entry once again. Maybe a Bitcoin-decked balance sheet doesn’t match the S&P 500’s dress code.

At least, it's better than being kicked out. Casino firm Caesars Entertainment ($CZR) has some experience with showing people the door, but this time it’s the one being asked to leave. $CZR departs to the S&P Small Cap 600 after its market cap dropped below the inclusion threshold.

Enphase Energy ($ENPH) is also getting axed after its valuation slipped. It’s a reminder that even well-known names can lose their spot if they don’t keep up.

For investors chasing the next big inclusion, it’s a reminder that hype fades and reality hits hard. The companies that survive are the ones built to last beyond opening night blitz.