Reddit Stock Jumped 11%. The Business Had Almost Nothing to Do With It

Reddit shares jumped more than 11% on Friday after S&P Dow Jones Indices announced the company will join the S&P 500 on August 18. The obvious explanation is that index funds now need to buy the stock. According to J.P. Morgan, demand could reach approximately 16.7 million (RDDT) shares. That is a significant number relative to normal trading volume. But the more interesting question is not simply who has to buy. It is how much of that buying has already been anticipated, who will sell into it, and what happens when the forced demand disappears.

Nothing suddenly changed about Reddit’s advertising business on Friday. Its users did not become more valuable overnight. Management did not raise guidance. The ownership structure changed. That matters because stocks do not move only when fair value changes. Occasionally they move because the people who own them, or suddenly need to own them, change.