History Says This Is What Happens When a Stock Joins the Nasdaq-100

Membership has its privileges. Space Exploration Technologies (NASDAQ: SPCX) investors are hoping that's the case regarding the stock's July 7 inclusion in the Nasdaq-100 Index.

A quick refresher: Before what was the largest initial public offering (IPO) in history, Nasdaq and several other index providers embraced "fast track" rules, paving the way for SpaceX to join various gauges more quickly than usual. In the case of the Nasdaq-100, the index opened the door for SpaceX (and potentially other large IPOs in the future) to join the benchmark after 15 trading days. For Elon Musk's company, that day is July 7.

SpaceX is joining the Nasdaq-100 Index on July 7, but that may not translate into huge gains for the stock. Image source: Getty Images.

That's a big deal because the Nasdaq-100 usually adds and removes stocks only once a year, on the third Friday of December. Now, SpaceX isn't just joining a widely followed index; it will be added to funds tracking that gauge, including exchange-traded funds (ETFs) such as the Invesco QQQ Trust (NASDAQ: QQQ) and the Invesco NASDAQ 100 ETF (NASDAQ: QQQM). That's no small feat because, as measured by assets under management, the Invesco QQQ Trust is the fifth-largest ETF trading in the U.S., while its stablemate is in the top 25.

But does it matter to investors directly holding SpaceX today? The answer is "maybe."

Nasdaq-100 inclusion could spark SpaceX

Market history isn't guaranteed to repeat, but it's worth noting that the typical Nasdaq-100 addition gains about 1% over the five days spanning the announcement and its eventual inclusion in the index. That doesn't include unusual circumstances, such as the additions of Moderna and Zoom Communications during the height of the coronavirus pandemic.

It was widely known that SpaceX would be added to the Nasdaq-100, but the stock still rallied 2.7% over the five days ending July 2. Another historical footnote worth observing: From 2010 through 2024, the average Nasdaq-100 addition gained 3.8% over the following 90 days. A year out, stocks joining the Nasdaq-100 averaged an upside of 12%.

SpaceX isn't beholden to that history. It could outperform or lag the 90-day and 12-month averages. Fundamentals, including earnings and revenue growth, launch data, and investor sentiment, will determine SpaceX's performance following its addition to the famed tech-heavy index.

Something else for investors to consider -- Nasdaq-100 fast-track inclusion doesn't guarantee permanent membership. Moderna and Zoom learned that the hard way, as neither is in the index today. Nor does joining outside the usual rebalancing window ensure prominence. Arm Holdings and Shopify received that treatment, but those stocks together account for less than 1.3% of the index.

Speaking of prominence...

Even if an investor assumes that SpaceX will trade higher upon joining the Nasdaq-100, it pays to be more inquisitive. No one has a crystal ball, so projecting precise gains is a fool's errand, but it is safe to say post-inclusion gains for this space stock will be small.

That's the result of a scant percentage of SpaceX shares freely floating. As a result, the stock's initial weight in the Nasdaq-100 is likely to be around 0.7%. Back-of-the-envelope math indicates that forced buying of the aforementioned pair of Invesco ETFs would exceed $5 billion.

That's something, but it's not much in the context of a stock with a market capitalization of nearly $2.1 trillion.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arm Holdings, Moderna, Shopify, and Zoom Communications. The Motley Fool has a disclosure policy.