ServiceNow Rallies Ahead of Joining the S&P 500 -- Update
November 20 2019 - 5:10PM
Dow Jones News
By Michael Wursthorn
Shares of ServiceNow Inc. are getting a taste of the "inclusion
effect."
The cloud-software company's stock got a boost this week after
S&P Dow Jones Indices, the company that manages the S&P 500
benchmark, said it would add the stock to the broad index before
the opening of trading Thursday. Shares are up 6% over the past two
trading sessions since the announcement and are trading above $280,
extending their gain for the week to 8.7%, the best weekly run
since April.
Stocks tend to get an immediate boost on news that they will
join a major index such as the S&P 500. Nearly $10 trillion
tracks the broad index through passive funds, and fund managers
benchmarked to the S&P 500 or sectors related to the newly
added stocks move to take the latest index constituent into
account.
But the index inclusion effect doesn't last long, research has
shown. A study by Ned Davis Research found that new additions to
the S&P 500 between 1973 and last year rose a median of 17% in
the year leading up to their inclusion. A year later, those stocks
usually lagged behind the S&P 500.
That same scenario played out with T-Mobile US Inc. this year.
The wireless carrier rose 25% between December and mid-July, just
before it was added to the S&P 500. Shares have fallen 2.3%
since its inclusion.
Home builder NVR Inc. also had a big gain before its addition to
the S&P 500. The company's shares jumped 47% this year through
Sept. 25. Since joining the broad index on Sept. 26, shares have
gained just 1.6%.
Some stocks have bucked the trend, however, thanks to solid
corporate profit reports. MarketAxess Holdings Inc. is up 26% since
it joined the S&P 500 in early July, building on its 53% rise
between December and June.
One thing going for ServiceNow is a string of strong earnings
this year, which have pushed shares up 59%. Some of its biggest
gains followed corporate earnings reports, and analysts forecast
another quarter of growth for the final three months of the
year.
The company went public in 2012 at $38 a share.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
November 20, 2019 16:55 ET (21:55 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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