Three hot stocks — one a surprise — will join the S&P 500

The Standard & Poor’s 500 Index includes large companies. Only big companies.

To become a constituent of the index, a company must have a minimum market capitalization of $18 billion. Additionally, of course, the company must be a US company and listed on a major stock exchange. Which means New York, Amex and Nasdaq.

S&P Dow Jones Indexes, the organization that manages the S&P 500, adjusts its market capitalization requirements for the index, as well as those for the S&P MidCap 400 and S&P SmallCap indices, once or twice a year.

The market capitalization of the S&P 500 has largely increased in the 21st century.

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Minimums were cut twice during the 2008-09 financial crisis.

• From $5 billion to $4 billion on September 15, 2008, 10 days after the collapse of investment bank Lehman Brothers.
• At $3 billion in December 2008
• (The other two indexes have also been adjusted.)

The S&P 500 threshold rose again starting in December 2009, rising steadily until January 2023, when it was lowered to $12.7 billion from $14.6 billion. This while the Federal Reserve was raising interest rates to reduce inflation. (Stocks have not handled high rates well.)

So with the $18 billion mark in place, S&P Dow Jones announced Friday that it is adding three stocks to the S&P 500 and replacing others.

• Data analytics company Palantir (PLTR )
• Computer and electronics giant Dell Technology (della)
• Erie Indemnity Co. (ERA) an insurance company based in Erie, Pennsylvania.

The changes take effect before the opening of trading on September 23.

Nominees are stocks loved by investors

Palantir is up nearly 77% this year. The company, co-founded by Paypal (PYPL) Co-founder Peter Thiel is known for his expertise in big data analytics, including activities such as monitoring terrorist activity and government fraud, and helping large corporations analyze economic, political and government trends.

It has had controversies, including potential illegal surveillance. The market capitalization is $68 billion.

The company has a huge Stanford connection. Six of seven executives — including CEO Alexander Karp and Thiel, the chairman of the board — hold degrees from the school.

Dell is more than Dell, the PC maker. Thanks in part to its 2016 $50 billion acquisition of software and storage company EMC, Dell markets next-generation servers for use in artificial intelligence, robotics, computer security and information security applications. The market cap is $78 billion and the stock is up 33% in 2024.

Erie Indemnity is the surprise of the trio and the smallest by far. But the company, founded in 1925, is a very profitable insurance company that offers accident, auto and life policies in 12 states. The stock is up 47.6% in 2024 and has a market cap of $26.5 billion.

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A coffee robot built by Dell Technologies serves coffee at a trade show in Shanghai.

CFOTO/Getty Images

A well-known stock among S&P 500 leavers

The best known is the American Airlines Group (AAL) parent of American Airlines. It is the largest airline in the world, measured by number of passengers carried, fleet size and planned passenger-kilometres. Airlines are still recovering from the damage caused by the Covid-19 pandemic. And the price of US stocks is down 21% this year (after only an 8% gain in 2023). It’s also down 33% from its 52-week high. Its market value is around $7 billion. The market value of Delta Air Lines (DAL) is $27.1 billion, and its stock is up 4.4% this year.

After American’s departure, the index will still include three airlines: Southwest Airlines (LUV) United Airlines (UAL) and Delta.

Also deleted:

Etsy (ETSY) online marketplace operator, best known for its popularity among craft enthusiasts. Shares surged during the Covid-19 pandemic, reaching nearly $300 in November 2021. Shares closed Friday at $53.19, down 46.7% year-to-date.

Bio-Rad Laboratories (BIO) which manufactures specialized technology products for the life science research and clinical diagnostics markets. Shares of the Hercules, Calif.-based company hit $825.77 in September 2021. Its price has fallen to $329.75, but is up 2.1% this year.

The American will replace the Tegna radio station (TGNA) in the S&P Midcap 400 index. Tegna moves to the small cap index. Bio-Rad replaces Erie Indemnity in the Midcap Index. Etsy replaces Haverty furniture companies (HVT) in the S&P Small-Cap index.

There are many other moves in the S&P. Check them out here.

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