Tesla Motors, Inc. (NASDAQ: TSLA), SPDR S&P 500 ETF (ETF: SPY) – Will Tesla destabilize the S&P 500?

Tesla Inc (NASDAQ: TSLA) was added to the S&P 500 on Monday and the shares fell 7.8% this week, contributing to an overall drop of 0.5% for the SPDR S&P 500 ETF Trust (NYSE: SPY).

Given that several market analysts and experts have compared Tesla’s parabolic rise in the past two years to the 1999 dot-com bubble stocks, investors in S&P 500 index funds are understandably concerned that Tesla may have destabilized the entire S&P 500.

Related link: Despite $ 38.2 billion in losses, Tesla short sellers increase bearish bets

There is no cause for concern: DataTrek Research co-founder Nicholas Colas said S&P 500 investors concerned about Tesla’s overvaluation should remember that Tesla has only 1.6% of the index.

Last year, Tesla averaged a 4.1% up or down one day, about four times the S&P 500’s long-term standard deviation of daily returns. In other words, Tesla’s influence on the volatility of the S&P 500 would average about 6 basis points on average last year, Colas said.

At the same time, Colas took a look at the impact that joining the S&P 500 had on high-growth technology stocks Facebook Inc. (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN) and Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL). He found that Alphabet and Facebook experienced less volatility and a higher correlation with the S&P 500 after entering the index. Amazon’s volatility, on the other hand, remained high and the shares continued to trade regardless of the index.

Tesla and Amazon: Colas said Tesla looks more like Amazon than Facebook and Alphabet, suggesting that investors should be prepared for stock volatility to continue in 2021 and beyond.

But even if its volatility continues, Colas said investors on the S&P 500 index need not worry too much about Tesla’s destabilizing impact.

“Yes, it is representative of the animal spirits that drive marginal stock prices to a number of disturbing names. But it is still only 1.6% of the S&P 500, ”he said.

Benzinga’s opinion: Even in a worst-case scenario, in which Tesla gives up all of its earnings for the past two years, this would represent a drop of about 90% for the shares. With an overall weighting of 1.6% for Tesla, this 90% disadvantage would still translate into a 1.44% decline for the S&P 500.