Why Did Robinhood Stock (HOOD) Jump This Week?

Key Points

• HOOD jumped after finally getting the nod to join the S&P 500.

• HOOD will join the index before the market opens Sept. 22, replacing Caesars Entertainment.

• 10 stocks we like better than Robinhood Markets ›

Shares of Robinhood Markets (NASDAQ: HOOD) soared this week, finishing up 13.6%. The jump comes as the S&P 500 and the Nasdaq-100 gained 1.6% and 1.9%, respectively.

The online-trading platform and favorite of retail traders saw its shares soar this week following the official announcement of its inclusion in the S&P 500.

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Robinhood joins the S&P 500, replacing Caesars

The company will officially join the S&P 500 index before markets open on Sept. 22, taking the place of Caesars Entertainment. The index undergoes regular rebalancing, adding and removing companies. When stocks get the nod, they typically experience a surge as fund managers purchase shares to align their holdings with the index, generating immediate buying pressure.

The inclusion comes after Robinhood missed out during the last rebalancing, leaving investors wondering when the company would make the cut. During the company's annual shareholder meeting in June, an investor asked Robinhood's CEO about joining the S&P 500. He addressed the question, saying, "It's a difficult thing to plan for... I think it's one of those things that hopefully happens."

Image source: Getty Images.

The retail trading darling finds its footing

Robinhood has helped spur an explosion in retail trading and continues to innovate and expand its product offerings, helping it boost its revenue in down markets when retail trading is quiet. The S&P 500 inclusion helps validate Robinhood in the eyes of many investors, and the move should bring more institutional interest.

Even though Robinhood's stock carries a pretty significant premium, I think Robinhood is set to succeed

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.