Reddit stock rises 11% after reported S&P 500 inclusion

Reddit stock S&P 500 inclusion news sent the social-media company’s shares up 11% in extended trading Thursday, CNBC reported. The move followed an announcement, cited by CNBC, that Reddit is scheduled to join the S&P 500 on Aug. 18, replacing AvalonBay Communities Inc.

For investors, the announcement gives a date to watch and a straightforward reason the shares drew attention after the market’s regular session. CNBC said companies can rise after entry into major indexes because managers running funds that track those benchmarks may need to purchase the new constituent’s shares to keep their portfolios aligned with the index change.

That is a general explanation for why index additions can affect trading. CNBC did not report a measure of Reddit-specific fund purchases, nor did it attribute a precise portion of the 11% extended-hours gain to those purchases.

What does Reddit’s S&P 500 inclusion mean?

According to CNBC’s account of the S&P Dow Jones Indices announcement, the membership change takes effect Aug. 18. Reddit will take the place of AvalonBay Communities in the index on that date.

Funds that seek to track a benchmark aim to reflect its listed holdings. When a benchmark changes its constituents, their managers may need to buy the incoming company’s shares to match the revised benchmark, CNBC said. That potential demand is why investors often focus on index-addition announcements, although an announcement alone does not establish how a stock will trade afterward.

The 11% gain reported by CNBC occurred in extended trading, rather than during the regular market session. The report did not provide a regular-session closing price, a valuation figure, or later trading results.

How does Reddit fit into the index’s social-media group?

CNBC described Reddit as the second pure-play social-media company in the S&P 500 and identified Meta as the other. The report also noted that Pinterest and Snap went public before Reddit but have smaller market capitalizations, while Twitter had been an S&P 500 member before its 2022 acquisition by Elon Musk. CNBC said the company is now called X and is owned by SpaceX.

The broader set of index changes also includes Sun Communities Inc., which CNBC reported will enter the S&P MidCap 400 on Aug. 20, replacing Webster Financial Corp. For Reddit shareholders, the specific announced change remains the Aug. 18 S&P 500 entry and AvalonBay replacement.

This story draws on original reporting from CNBC.