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What Does Moderna's Addition to the S&P 500 Mean for Investors?

Moderna (NASDAQ: MRNA) was recently added to the S&P 500 index. This was a big milestone for the vaccine maker after its breakout year in 2020. In this Motley Fool Live video, recorded on July 19, 2021, healthcare and cannabis bureau chief Corinne Cardina and Motley Fool contributor Keith Speights discuss what the inclusion of the biotech stock in the S&P 500 index means for investors.

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Corinne Cardina: Keith, we're going to start with Moderna. On Friday, the news broke that Moderna is going to be added to the S&P 500. Shares went up. What does this mean for Moderna investors and would-be Moderna investors? What should we know?

Keith Speights: Well, Corinne, you're right. Moderna is going to be added to the S&P 500 Index. The reason why the stock shot up on Friday -- and I think it's up by a solid percentage today as well -- investors expect that mutual funds and exchange-traded funds that track the S&P 500 Index will buy up even more shares of Moderna, and so that's what's pushing the stock up.

I did a little checking though. I was curious to see how the stocks that have been added so far this year to the S&P 500 have performed. I looked at how they performed in the days between the announcement that they were being added to the index and the actual effective date of their inclusion, and I looked at how the stocks performed in the following days after they were added to the S&P 500 Index.

I actually have an article out this morning that goes into more detail on this. But here's what I found. The main takeaway is that there wasn't a clear pattern: Some stocks moved higher in the days leading up to their inclusion on the S&P 500 Index, others didn't. Some stocks moved higher after their inclusion to the index, others didn't. Some stocks actually went down in both cases. There really wasn't a clear rhyme or reason as to what would happen with the stock.

I think there are two things that explain what's going on there. First of all, mutual funds and ETFs were probably already buying up shares of these stocks even before the announcement was made about their addition to the S&P 500. They have an inkling of what's going to happen before the announcement comes out, and so they go ahead and start making some buys. So I think that's part of the factor here.

The other thing is that there are just different dynamics at work with individual stocks, and those different dynamics account for these stocks doing different things after the announcement and then after their inclusion on the S&P 500 Index. The bottom line for investors here, in my view, is that you shouldn't buy Moderna just because it's being added to the S&P 500 Index, although that's really good news for the company for sure. It's a recognition of Moderna's success for sure.

The more important thing to focus on with Moderna are those unique dynamics that impact this particular stock. You want to look at, what are the factors that impact Moderna's ability to continue growing earnings in the future? In particular, that means you're going to watch out for the rise of the coronavirus variants and how those variants impact the potential for Moderna to sell more of its COVID-19 vaccine.

Cardina: It's really exciting to see Moderna -- it's become a household name in the past year, understandably. I think this is definitely like you mentioned it, recognizes that Moderna does have a lot in its pipeline other than COVID vaccine. I'm really excited about this and can't wait to see what Moderna's future looks like in the mRNA world.

Corinne Cardina has no position in any of the stocks mentioned. Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Moderna Inc. 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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