Why IAA and Carpenter Technology Shares Just Jumped 10%, But Sunrun Dipped

What happened

IAA (NYSE: IAA). Carpenter technology (NYSE: CRS). Sunrun (NASDAQ: RUN). What do an online damaged car marketplace, specialty metals manufacturer, and solar panel installer have in common? Well, all three of these stocks are making big moves in the stock market today: IAA and Carpenter are both up over 10% early in trading, but Sunrun is down over 10%.

And all of them move because of factors beyond their control.

Image source: Getty Images.

So what

As of 12:15 p.m. EDT, IAA shares continue to climb – up 13.7% – and Carpenter is retaining at least the majority of its early gains (up 7.4%). Sunrun, however, is still down 8.6%. And all of those moves can be traced to an announcement from the S&P Dow Jones Indices today about the change in membership in its various stock market indices.

Specifically, this morning, S&P announced that the IAA will replace Luxury business (NYSE: DLX) in the S&P MidCap 400 index of companies, while Carpenter Technology will exit this index and enter the S&P Small Cap 600 instead, taking the place of Cedar Real Estate Trust (NYSE: CDR), which will disappear entirely from the index.

Conversely, Sunrun will leave the SmallCap index and join the MidCap, taking the place formerly occupied by Legg Mason (NYSE: LM), which is acquired by Franklin Resources (NYSE: BEN) and will soon cease to trade independently.

Now what

What do these index-to-index shifts have to do with stock prices? Well, in summary, investors are betting that when the moves do occur, mutual funds and ETFs that attempt to accurately track the performance of indices will need to buy (or sell) stocks in each respective index to accurately reflect. their composition. Officially, the changes take place on August 3, and knowing this, investors try to anticipate the movements of the indices by buying and selling stocks before the indices.

Could this lead to short term gains for people trading on August 3rd? May be. Does any of this have something to do with the long-term attractiveness of stocks, or their lack of appeal, as investments?

Not at all.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Gertrude H. Kerr

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