The S&P 500 may soon see some new additions. Paramount Global could be at risk of being dropped from the index due to its upcoming merger with Skydance Media. Currently, Paramount has a market cap of about $8 billion, making it one of the smaller names in the index, while the threshold for newcomers seems to be around $22 billion. Normally, stocks with smaller market capitalizations struggle to get in, but the S&P evaluates factors like float-adjusted market cap and liquidity, which could be influenced by the merger.
The merger is expected to finalize on Thursday, leading the new entity to trade under the ticker “PSKY.” But there’s a catch—Skydance holds roughly 70% of Paramount’s shares, which could significantly reduce the float-adjusted value to about $3 billion. This might make it less appealing for S&P Global, which may question whether it fits within their index criteria or has enough liquidity.
Meanwhile, some investors had high hopes for Applovin and Robinhood to step into the S&P 500 sooner this year, especially since both were considered strong candidates to replace Hess, acquired by Chevron. Both companies meet the market cap and profitability requirements pretty comfortably. However, they were passed over in favor of a fintech entity.
But now, size seems to be an issue. Applovin and Robinhood hold market capitalizations of $130 billion and $92 billion, respectively, giving them much heftier profiles than Paramount. Index managers might seek a replacement that’s similarly sized, perhaps looking at interactive brokers, Emcor, or Comfort Systems USA—companies that are already significant players in the Mid-Cap S&P 400.
Being part of the S&P 500 is more than just an honor; it’s also a confidence boost for investors. When a stock gets included in this prominent index, it enhances the company’s visibility and credibility. Plus, it can drive demand from passive investors. The top three ETFs in the U.S. track the S&P 500 and manage nearly $2 trillion collectively. So, when index components change, funds following the index need to adjust, leading to an uptick in demand for any new entries.
However, there’s a flip side. If Paramount is dropped from the S&P 500, it could hurt the stock’s value. In fact, shares have already declined about 17% recently amid chatter about its position in the index.
