Posted on 06/07/2026 8:24:18 PM PDT by SeekAndFind
To get into the S&P 500, a company is supposed to make some money. The sum of its four quarters of earnings has to be positive—at least GAAP wise—and so does its most recent quarter.
That’s a pretty basic rule, decades old and it’s the reason Tesla sat outside of the index until the end of 2020, years after it had become one of the most valuable companies on earth.
Soon, that rule will be broken, likely three times. On purpose.
SpaceX, OpenAI and Anthropic are all independently preparing to go public, at different speeds; SpaceX has released its S-1, Anthropic filed for IPO on Monday and OpenAI is rumored to next quarter. None of those companies yet make money; in fact, SpaceX lost billions last year, and OpenAI and Anthropic are also not profitable. Yet, when they go public, they will be ranked among the largest companies in America; and quickly begin dominating 401Ks and index funds.
The consultation put three of the index’s oldest entry requirements up for questioning, all at once: The seasoning period, normally 12 months of public trading before a company can be considered, would drop to six. Then there’s the aforementioned profitability requirement—the four-quarters-of-GAAP-earnings test—which would be waived entirely for MegaCaps.
(Excerpt) Read more at fortune.com ...
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Here’s a quick explanation for those who have their IRA’s and 401Ks in these large stock market indexes:
There are two main rules for a public company to get into the S&P indexes.
First, it has to make money. Before inclusion, the company must be profitable in both the most recent quarter and the sum of the past four quarters.
Second, it has to be public for at least one year (aka the “seasoning period”).
Both rules are going into the dumpster on June 8. After a recent consultation, S&P Dow Jones decided to waive the profitability requirement and cut the seasoning period to six months.
What’s surprising is that this isn’t a universal rule. The waiver only applies to mega caps, most of which are Big Tech.
That means ETFs tracking S&P indexes could soon be forced to buy large, unprofitable tech companies. Those include the S&P 500, S&P MidCap 400, S&P SmallCap 600, S&P Composite 1500, and a few others.
What’s even more surprising is the timing. The rule will go into effect only days before SpaceX’s IPO. OpenAI and Anthropic could also get a shot at the waiver later this year.
This also comes after Nasdaq adopted its own “Fast Entry” rule in March, allowing large IPOs to enter the Nasdaq-100 after just 15 trading days. That rule became effective May 1.
That means many ETFs will soon be forced buyers of giant, unprofitable tech companies immediately after they go public.
Now all conspiracy theories aside, this move points to another big change in the market: This is the end of Big Tech as we know it.
For most of this century, Big Tech was a low-capex, high-margin sector that could grow fast, carry little debt, and consistently increase earnings.
AI broke that story. Now tech has little choice but to spend hundreds of billions just to keep up. Even Google is issuing equity and diluting shareholders to bankroll its AI infrastructure.
In other words, tech companies have gone from printing money to burning it. And index providers are likely adjusting in advance to keep passive ETF money flowing.
Not the S&P funds. A stock must be listed for 12 months before it is eligible to be added to the S&P 500 index.
You missed the point. They are trying to change the rules.
RE: Not the S&P funds. A stock must be listed for 12 months before it is eligible to be added to the S&P 500 index.
That’s the point of the article. This rule is being swept aside. See Post #2
This article is the opening scene to the next financial disaster movie.
To all reasonable people it is. All of this can NOT continue. Sooner or later, someone has to pay. It is not going to be pretty the next time we get a major correction in the markets. It is likely to exceed all records on the run down.
"S&P 500, S&P MidCap 400, and S&P SmallCap 600 Results:
"Based on S&P DJI's Index Committee review of the markets and after consideration of responses received from a wide range of market participants, no changes will be made to the eligibility criteria including financial viability screens, seasoning period, or minimum IWF, for the S&P 500, S&P MidCap 400, or S&P SmallCap 600 as a result of the S&P Dow Jones Indices consultation on the treatment of MegaCap companies. Accordingly, there will be no changes to existing methodology for this index family.
"S&P DJI determined that exceptions to the financial viability, seasoning, and IWF requirements should not be granted solely based on market capitalization. The decision not to adopt the proposed exceptions preserves core index principles by maintaining consistent application of these key requirements. Although there may be trade-offs between strict adherence to these eligibility requirements and broad representativeness, the current methodology provides substantial market coverage and sector balance. As a result, the indices can continue to meet their stated objectives while preserving their role as representative and investable benchmarks for the U.S. equity market."
It’s all a form of gambling. If you don’t know what the company really does or anything about its products and rely on its listing to judge its financial viability, then don’t bet the farm on it, only bet what you can afford to lose. And look up an ETF’s holdings, holding percentages and fees to know what you’re investing into before buying ETF shares. Again, only bet on ETFs what you can afford to lose.
It’s like putting the U.S. Postal Service in an S&P index. You can’t go wrong because it’s pretty much guaranteed to grow indefinitely even if it’s a dysfunctional disaster financially.
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