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Standard & Poor’s 500 drops Sears

Marketplace Contributor Aug 30, 2012

Standard & Poor’s 500 drops Sears

Marketplace Contributor Aug 30, 2012

Kai Ryssdal: You heard the numbers a couple of minutes ago, the S&P? Change is a ‘comin. Next week, one of America’s most iconic companies loses its place in the benchmark index. Sears is getting the heave-ho from the S&P 500.

It’s a pretty straightforward situation. Billionaire investor Eddie Lampert owns a majority of the outstanding shares, which means not enough Sears stock is being publicly traded to merit it being part of the influential S&P. But the end of the company’s 57-year run on the S&P 500 brings with it some big questions about the stock’s future. Here’s our senior business correspondent Bob Moon.

Bob Moon: Just what does it mean when a company gets removed from the S&P 500 — especially one of the charter members of the index, that used to promote itself as the all-American store?

1978 Sears TV commercial: Sears, where America shops.

Charles Geisst: Clearly Sears is no longer at the top level of American retailers.

Manhattan College stock market expert Charles Geisst says this move only adds to the recent spate of bad P.R. for Sears. But the company was quick to point out it’s been one of the best performers on the S&P this year, with the value of its shares up more than 80 percent. So what gives?

David Blitzer: Removing a stock from an index is not any kind of investment recommendation whatsoever.

David Blitzer is chairman of the index committee at Standard & Poor’s. He says stocks come and go from the list all the time, based on the rules. So why did Sears shares tank by more than 7 percent today? Prof. Geisst says that mutual fund you own may have just dropped Sears from its holdings.

Geisst: A lot of fund managers will try to emulate the performance of the S&P 500. They’ll buy the stocks within the S&P 500.

And S&P’s Blitzer says that can mean a temporary blip in a stock’s value.

Blitzer: When a stock is added to the S&P 500, its price typically rises around 5 percent over a few weeks, and then over the next three to six months, it will give back that gain.

That’s not a hard and fast rule, though. Some stocks actually end up doing well after they’re removed — but it’s also true that some companies have ended up going bankrupt. As is always the case with the stock market, there are no guarantees.

I’m Bob Moon for Marketplace.

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