Reddit joins the S&P 500 before the market opens on Aug. 18, replacing AvalonBay Communities. J.P. Morgan estimates index funds will need to buy about 16.7 million Reddit shares to match the change, worth nearly $2.9 billion at Friday's price, even as the stock remains down more than 31% for the year.
Index funds tracking the S&P 500 face a hard deadline: J.P. Morgan estimates they must buy about 16.7 million Reddit shares to reflect Reddit's addition to the benchmark. At Reddit's Friday-morning price of roughly $175.69, that works out to nearly $2.9 billion of stock. Reddit will replace AvalonBay Communities in the index before trading begins on Aug. 18.
A mechanical buyer that can't say no
That projected demand is large next to how the stock normally trades. Reddit's average daily trading volume since its March 2024 IPO has run about 5.98 million shares, meaning the rebalancing flow is close to three times a typical day's volume. Shares surged more than 11% on the inclusion announcement.
Unlike a conventional rally driven by earnings or an analyst upgrade, an index-inclusion rally runs on mechanics rather than opinion. An S&P 500 index fund's job is to track the benchmark, not to judge whether Reddit's valuation looks rich. That is why the roughly $3 billion of anticipated buying matters even though the shares are down more than 31% in 2026 through Thursday and more than 42% from their September 2025 record.
Gains often come before inclusion, not after
Stephens analyst Melissa Roberts notes that newly added S&P 500 companies have historically outperformed the benchmark between the announcement and the actual inclusion date, with the best gains always landing the day after the announcement. After inclusion, however, those stocks have historically lagged the S&P 500 by roughly 2% over the next three months.
Reddit's own fundamentals still carry an open question. In its most recent quarterly report, the company said erratic search-engine traffic hurt U.S. user growth in the second quarter, even as revenue elsewhere looked stronger.
Why AvalonBay is leaving the index
AvalonBay is exiting the S&P 500 because of its all-stock merger with Equity Residential, announced in May, which will create a rental-housing company called Vivmark Residential with an enterprise value of about $69 billion. The combined company is expected to stay in the index after the deal closes, opening the slot Reddit will fill.
For now, Reddit shareholders are watching two separate stories: how much of the projected $2.9 billion in index buying actually materializes in the next few sessions, and whether the company can turn its user base back toward growth once that mechanical demand fades.
Source: TheStreet
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