S&P 500 Welcomes New Members: What You Need to Know
The S&P 500 is adding three new companies: CRH Plc, Carvana Co., and Comfort Systems USA Inc. These changes will take effect at the end of December. Specifically, they will replace LKQ Corp., Solstice Advanced Materials Inc., and Mohawk Industries Inc. right before trading starts on December 22.
Following this announcement, shares of Carvana and CRH rose over 7% in after-hours trading, while Comfort Systems saw about a 2% increase. This is a significant moment for Carvana, based in Tempe, Arizona. The company’s stocks have skyrocketed from under $4 last year to around $400 now—a staggering 10,000% increase! Carvana’s recent success is driven by its ability to cut costs and restructure its debt, which has boosted earnings. In the last quarter alone, the company sold a record 156,000 vehicles.
Why does inclusion in the S&P 500 matter? With the rise of passive investing, being part of this index can significantly increase demand for a company’s shares. Funds that track the S&P 500 will need to buy stocks of the newly included companies, which often leads to a temporary stock price spike.
To qualify for the S&P 500, companies must meet specific criteria. They need a market cap of at least $22.7 billion and must also pass tests for profitability, liquidity, and share float. Being removed from the index can negatively impact a company’s stock price as funds sell off shares to adjust their portfolios.
Analysts have noted that Carvana, CRH, and Comfort Systems were strong candidates for inclusion well before the announcement. Wendy Soong and James Seyffart from Bloomberg Intelligence highlighted Carvana’s sector diversification and strong performance this year, with its shares rising nearly 100%.
Experts caution that while stock increases following such announcements can be significant, these price jumps often don’t last long. Matt Maley, a chief market strategist at Miller Tabak + Co., pointed out that demand spikes quickly after the announcement but tends to settle soon after. However, the impact of these announcements remains crucial, particularly for index-tracking funds.
In sum, the additions of CRH, Carvana, and Comfort Systems to the S&P 500 underline the changing landscape of the stock market and the importance of being included in this key index. As of now, it will be interesting to see how these companies perform in the long run and how they adapt to the demands that come with their new status in the market.
For further details, you can check sources like Bloomberg and financial news at Bloomberg for the latest updates.
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