The Curse of Being Added to the S&P 500

Conventional wisdom says that being added to the S&P 500 is a positive development for a stock as it represents a ringing endorsement of the company's viability and fundamentals going forward. On the flip side, when a stock is removed from the S&P 500 for non-merger related reasons, it's thought of as a negative omen for the company. The reality, however, often differs from the theory, and the latest change to the S&P 500 is just another example.

After the close on August 31st, S&P added Carefusion (CFN) to the S&P 500 following its spin-off from parent company Cardinal Health (CAH). To make room for CFN, S&P said it would remove Manitowoc (MTW) as it had the smallest market cap in the index. So how have the two stocks done since? Since the changes were made, CFN has declined by nearly 5%, while MTW is up over 10%.

Comments

[Graham and ...:]

"Buy on rumor, sell on news."

Sep 08 04:10 PM

[William M. ...:]

You show one example over less than a 2 week period and conclude that's proof of a curse?!

Do you guys sell research or just do PR work?

Sep 08 08:07 PM

[trick:]

You're comparing a medical devices company with crane manufacturer.. over a period of 1 week. It's a meaningless piece of information.

Sep 08 08:11 PM

[bmcon:]

I'm glad that it is only conventional wisdom.

Sep 08 10:05 PM

[Moon Kil Woong:]

This looks more like a stock specific issue than anything else. generally being added to an index gives your stock a lot more trading breadth even if it's only from Goldman's high frequency trading bot.

Sep 08 10:47 PM

[a fat panda:]

I wish I could say that your comparison was apples and oranges, but those items have much more in common than MTW and Carefusion. Other than the fact that both have tickers, on what basis would you think that any comparison would have a meaning?

Sep 09 12:42 PM

[Lynn:]

I believe Standard & Poors announces their additions and deletions in advance, so the price wouldn't be sharply affected on the day the index is changed. I wonder if these stocks 'moved' on the announcement and then corrected after the index was modified.

Sep 09 01:31 PM

[mkreisel:]

YHOO is the ultimate curse for being added to S&P.

Sep 09 02:42 PM

[davidadro:]

This kind of stupidity and meaningless information is another given proof as to why blogs are more B-lah, B-lah, B-lah, than Log-ic. The estimated market cap for this stock was to be just above $18.00 and change by the company CEO and officials, and anything around or over that is far from a curse. This is a new entity, and one week’s fluctuation to find its center is also far from a curse. I love reading the ideas of others, but can’t understand how just hearing one talk to themselves brings anything to the table. This type of information, is nothing more than something to laugh at, if not so concerning to the actual outcome that disinformation can harm one's financial portfolio. Stop talking, and start thinking, and be responsible to those that actually listen to your trifle.

Sep 09 05:00 PM

[Long Time M...:]

You're a moron, one example over one week's time means nothing.

Sep 10 11:47 AM