Palantir slumps after announcement of joining Nasdaq 100
Buy the news, sell the fact.
Palantir Technologies slumped on strong trading Monday, a somewhat anticlimactic reaction to its announced inclusion in the Nasdaq 100 index after the close on Friday.
As we’ve pointed out — and certain members of the company’s board seemed to confirm — getting added to the list of the largest nonfinancial firms traded on that exchange seemed to be something of a goal for the company, which transferred its listing to the Nasdaq last month.
That’s because addition to these market benchmarks create built-in demand for the stock. The Nasdaq 100 is the foundation for the popular Invesco QQQ Trust — which has more than $300 billion in assets. In order for the managers of the fund to match the performance of the underlying index they have to buy the stocks on the list, come hell or high water.
A similar dynamic was at play back in September, when Palantir was added to the mother of all market indexes, the S&P 500. (The stock has more than doubled since that was announced on September 6.)
As you can see in the chart above, that addition mechanically boosted the ownership of the stock by the giant institutions that operate index-fund companies BlackRock, Vanguard, and State Street Global Advisors. The stock price is up more than 130% since the announcement of Palantir’s inclusion in the S&P 500.
Best of all, at least from the perspective of management, is that these institutional owners are agnostic about how the company is actually doing. As long as the stocks are on the list, these funds will own ‘em, which would seem to create a pretty compliant shareholder base that likely won’t squawk much during periods of underperformance.
Such membership privileges have its limits, though. If a company goes off the rails, the price plunges, and it’s booted from an index, it can be pretty painful, as Super Micro Computer is finding today.
