This year's stock market downturn has put Zions and Comerica, regional banks of roughly $5 billion market capitalization each, in danger of being dropped from the S&P 500 listing. Both of these companies had been fourth- and sixth-smallest members of the S&P 500 index (according to FactSet) as of this week; a fate similar to Lincoln National who was lately removed from the S&P 500 and instead given a spot in a small-cap index.
The plunge in stocks of regional banks this year has put Zions and Comerica, with market capitalizations of around $5 billion each, at risk of delisting from the S&P 500. This week, Zions and Comerica were the 4th and 6th smallest companies in the 500-company index, respectively, per FactSet. This is similar to Lincoln National being booted out of the S&P 500 last month and placed into a small-cap index, with Blackstone, the global leader among alternative asset managers, taking its place. This regional banking crisis has already triggered alterations in the composition of the S&P 500—the most famous index of large American companies in the investing world. Silicon Valley Bank and First Republic were taken off the benchmark after suffering government seizures as a result of deposit runs. Analysts believe further alterations could happen if the industry experiences a prolonged slump. In an interview, research director at Janney Montgomery Scott, Chris Marinac, said, "It's definitely a danger. If the market once again changes the valuation of these companies, particularly if interest rates upturn, I wouldn't reject it out of hand."He heard about the exciting news
He got wind of the thrilling information.
Friday sees the disclosure of third-quarter results, starting with JPMorgan Chase. Investors are curious to determine the influence that the higher interest rates had on the bond holdings and deposits for the period. Businesses that are no longer considered large-cap stocks have an increased chance of being removed from the S&P 500. As of the end of August, seven companies were valued at $6 billion or less. September saw the expulsion of insurer Lincoln National and Newell Brands, a consumer firm.As expected, the inclusion of companies in the index often leads to a surge in the stock price because of the popularity of mutual funds and ETFs that are based on the index. However, those that are demoted may notice a decrease in their stock price as fund managers no longer need to buy their shares.
In order to be eligible for the S&P 500, a company must possess a market capitalization of at least $14.5 billion as well as meet profitability and trading standards. If the criteria for the S&P Composite 1500 is breached, then the firm might be removed from the index at the discretion of the Index Committee of S&P Dow Jones Indices. Nonetheless, this doesn't suggest that Zions or Comerica are about to be de-listed. The S&P 500 committee looks to limit turnover and faithfully capture index sectors, providing modifications only when it is necessary due to "ongoing conditions," which are in accordance to S&P's protocols.
Following the start of the Covid pandemic in March 2020, although some S&P 500 companies in the retail sector experienced temporary violations of the profitability rule, the situation did not result in widespread demotions through the Index, according to an individual who has studied the S&P 500. S&P Dow Jones Indices and Comerica declined to comment for this article, while Zion's didn't return a message seeking comment. Besides Zion's and Comerica, only KeyCorp and Citizens Financial have market caps below the criteria for S&P 500 inclusion, based on an Aug. 31 Piper Sandler statement. Nonetheless, with each having market capitalizations of more than $10 billion, they are less likely to face implications compared to smaller banks. After Blackstone became the first major alternative asset manager to join the S&P 500 recently, analysts predicted that KKR and Apollo Global may be following, and they would likely substitute other financial names. With KKR and Apollo having market capitalizations of more than $50 billion, Finian O'Shea of Wells Fargo suggested in a Sept. 5 research note that it's possible more demotions of low-market cap financials are forthcoming. – CNBC's Gabriel Cortes contributed to this article.
Commenti