Here's Why Vector Group Stock Jumped 15% Friday

What happened

Shares of Vector Group NYSE: VGR) were up 13.9% at noon EDT Friday, having cooled off a little after surging more than 15% earlier today. 

So what

Today's big jump looks entirely related to an announcement from S&P Dow Jones Indices that Vector Group would be joining the S&P SmallCap 600 Index, replacing Tetra Tech (NASDAQ: TTEK), which is being "promoted" from the SmallCap index to the S&P MidCap 400 Index

Man with surprised expression holds toy rocket that starts to launch.

Image source: Getty Images.

It looks like this "promotion" is driving a lot of trading volume in Vector Group. At this writing, almost 4.2 million shares have traded hands with nearly four hours left before market close. That's already about quadruple an average trading day of 1.1 million shares. 

Now what

The official move for both Tetra Tech (which, interestingly enough, is down 5% following today's announcement) and Vector Group to their new indices is set for Aug. 1, and my best guess is that today's jump for Vector Group is some front-running of its addition to the index. 

In other words, it's not really something that's material to the business itself, and it's likely that at least some of today's price movement is simply short-term traders looking to profit on added interest in the stock, or trading by index funds, such as the Vanguard S&P Small-Cap 600 ETF (NYSEMKT: VIOO), which will need to buy shares of Vector Group to properly match the index. 

Putting it all together, I wouldn't recommend buying or selling Vector Group based on this announcement alone. Its core tobacco business will continue to face the reality of fewer smokers in the U.S., where it operates, and it's going to take time to build up its real estate assets enough to offset the inevitable decline in cigarette sales. 

For now, its very generous 15% dividend could make it worth riding out that transition (and one that's likely to take many years,), but being added to an index doesn't really affect its prospects one way or the other. 

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Jason Hall 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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