Comment by tristanj
15 hours ago
The S&P's historical inclusion criteria were designed to filter out unstable, illiquid questionable companies to get a view of large-cap US equities. That logic worked when every major American company was public and profitable.
That's not true any more. Today we have multiple giga-caps (SpaceX, Anthropic, OpenAI) vying to IPO, all of which potentially in the top 20 largest companies in the US market, all ineligible for S&P 500 inclusion because of the 12-month profitability rule.
You claim S&P can "apply the same methodology they've always used" but this is just factually wrong. The inclusion criteria are not sacred rules set in stone and S&P has rewrote them multiple times. For example, they banned dual-class share structures in 2017 to stop SNAP from joining the index, but reversed it in 2023 because they excluded too many companies. The rules get rewritten when the market changes, and it's clear the current market environment has changed.
Meanwhile, Nasdaq changed their rules to handle this situation. And S&P changed the inclusion criteria for the S&P Total Market Index so SpaceX would be included.
It's clear these inclusion rules are changing.
> out unstable, illiquid questionable
So Space X, OpenAI, Anthropic? Those are perfect examples.
It's unlikely their valuations could survive the IPO if their float wasn't extremely low.
> top 20 largest companies in the US market
You do know that S&P weights are based on the free float and not the market cap. So based on that SpaceX etc. will not be in the top 20. The total value of shares of Johnson & Johnson available on the public market will be much higher than that of SpaceX/etc. based on their current valuations.
Then your issue is not the S&P methodology, which despite changes in detail remains, as you've said, aimed at filtering out undesirable companies from the index. Your issue is that you want us to believe your favorite tech stocks, which are both wildly unprofitable and have P:S ratios that defy rational investment, are somehow desirable immediate additions to the index. And your argument for why this should be is a lofty claim that "the market environment has changed."
You believe in brand power over numbers. Which is your prerogative. But it's not how the S&P is managed.
AKA, the ol' "this time is different"