Following significant gains for U.S. stocks over the past several months, the Standard & Poor's Dow Jones Indices announced updated market cap guidelines for its U.S. indices on March 10.
In order to ensure the benchmarks accurately reflect the current state of the marketplace, the index provider periodically adjusts its criteria. According to the Wall Street Journal, there have been eight of these adjustments over the last decade. The most recent change was in the summer of 2014.
David M. Blitzer, the managing director and chairman of the index committee, said the figures refer to total market value.
“Based on our review of the market’s progress – the S&P 500 is up 5.5% since the start of the year and 19% over the last 12 months – the Index Committee has revised the market cap guidelines for the S&P 500, S&P MidCap 400 and S&P SmallCap 600,” Blitzer said.
Effective immediately, stocks included in the S&P 500 must now have a total value of at least $6.1 billion, a 15% increase from the previous criteria of $5.3 billion.
For inclusion in the S&P mid-cap benchmark, companies must have a market cap between $1.6 billion to $6.8 billion. The previous range was $1.4 billion to $5.9 billion. For small caps, the range is now $450 million to $2.1 billion. It was previously $400 million to $1.8 billion.
As a result of the revised guidelines, three S&P 500 stocks will be cut from the index and replaced next week. Urban Outfitters Inc. (URBN, Financial), Frontier Communications Corp. (FTR, Financial) and First Solar Inc. (FSLR, Financial) will be replaced by Advanced Micro Devices Inc. (AMD, Financial), Raymond James Financial Inc. (RJF, Financial) and Alexandria Real Estate Equities Inc. (ARE, Financial). Additional changes were made to the mid-cap and small-cap indices as well.
After the announcement, Urban Outfitters and Frontier Communications each fell over 3% while First Solar dipped 0.9%. In contrast, Advanced Micro Devices’ shares soared nearly 4% while Raymond James Financial and Alexandria Real Estate climbed less than 1% each.
Disclosure: I do not own any stocks mentioned in the article.
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