Reddit Joins the S&P 500 Tuesday. Here's What History Says Could Come Next -- and What Investors Should Know.

Key Points S&P Dow Jones Indices said Reddit will replace AvalonBay Communities in the S&P 500 before the open on Tuesday, Aug. 18. Harvard Business School research found the average abnormal return from an S&P 500 addition fell from 7.4% in the 1990s to less than 1% in the 2010s. Reddit has grown revenue more than 60% year over year for eight straight quarters. 10 stocks we like better than Reddit › Reddit (NYSE: RDDT) is going into the S&P 500 (SNPINDEX: ^GSPC) . S&P Dow Jones Indices said Thursday evening that the social media company will replace AvalonBay Communities in the index before the market opens on Tuesday, Aug. 18. AvalonBay is leaving because a fellow index member, Equity Residential , is acquiring it. Investors treated the announcement as a windfall. Reddit shares were up about 13% in Friday trading, near $179. Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Even after the jump, the stock sits roughly 37% below its 52-week high of $282.95. The logic behind the pop is simple enough. Index funds tracking the S&P 500 must buy Reddit shares by Tuesday, and forced buying should push the price up. But is joining the index worth 13% of a company's value? The best research on the subject says the index bump has been shrinking for decades, and that over the most recent one, it essentially vanished. Image source: The Motley Fool. The disappearing index effect In a study titled exactly that, Robin Greenwood and Marco Sammon of Harvard Business School measured the abnormal return (the move beyond what the market would have delivered anyway) for every S&P 500 addition between 1980 and 2020. The effect wasn't always small. Additions gained an average of 3.4% in the 1980s, and the figure swelled to 7.4% in the 1990s. From there, though, it faded -- to 5.2% in the 2000s, and to less than 1% over the 2010s, a result the authors call statistically indistinguishable from zero. The pattern holds in reverse, too. Getting dropped from the index cost the average deletion 16.1% in the 1990s and just 0.6% in the 2010s. Companies jumping straight into the index from outside S&P's smaller benchmarks did better, and that's Reddit's situation. But the same decay shows up: direct additions returned 10.2% in the late 1990s, 8.8% in the 2000s, and 5.4% in the 2010s -- and even that number needs an asterisk, because the enormous 2020 inclusion rally in Tesla props it up. Excluding Tesla, the additions of 2020 averaged roughly nothing. The market adapted Why did the effect fade? The authors' answer is mostly structural. More additions now migrate up from the S&P MidCap index, where index-tracking money already owns them, so the new buying is smaller than it looks. And the market has become far better at supplying shares when index funds do have to buy. Plenty of investors now stand ready to take the other side of the trade. Anticipation plays a part, too. The cumulative climb in the stocks that ended up joining, measured across the 100 trading days before the announcement, grew from 9.6% in the 1990s to 18.7% in the 2010s -- though the authors note that could equally reflect the index getting better at adding recent winners. None of this is to say Reddit's Friday jump will simply reverse. Big inclusion rallies can still happen, as Tesla's once did. But the record says they are the exception now, not the rule -- and that on average, the badge itself has been worth close to nothing once the buying settles. What the index can't fix What Reddit keeps from here rides on the business, and the business is a strange mix of dominant and fragile. The dominant part is easy to see. Revenue has grown more than 60% year over year for eight straight quarters, reaching $2.8 billion over the trailing 12 months. And the company is solidly profitable, with about $871 million of net income over that span. The fragile part showed up two weeks ago. Reddit's stock sank after management told investors its search referral traffic had been choppy, reviving an old worry: A large share of Reddit's traffic arrives through Google, and Google's AI-generated answers increasingly make searchers less likely to click through. At about 40 times earnings , Reddit trades at a price that assumes the growth continues. That looked expensive to the market two weeks ago, and an index announcement changes exactly nothing about the user pipeline. I'd be cautious here. Should you buy stock in Reddit right now? Before you buy stock in Reddit, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Reddit wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $421,511 !* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,381,960 !* Now, it’s worth noting Stock Advisor’s total average return is 981 % — a market-crushing outperformance compared to 216% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor , and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of August 15, 2026. Daniel Sparks has clients with positions in Tesla. The Motley Fool has positions in and recommends Reddit and Tesla. The Motley Fool recommends AvalonBay Communities. The Motley Fool has a disclosure policy .

S&P Dow Jones Indices said Reddit will replace AvalonBay Communities in the S&P 500 before the open on Tuesday, Aug. 18.

Harvard Business School research found the average abnormal return from an S&P 500 addition fell from 7.4% in the 1990s to less than 1% in the 2010s.

Reddit has grown revenue more than 60% year over year for eight straight quarters.

Reddit (NYSE: RDDT) is going into the S&P 500 (SNPINDEX: ^GSPC) . S&P Dow Jones Indices said Thursday evening that the social media company will replace AvalonBay Communities in the index before the market opens on Tuesday, Aug. 18. AvalonBay is leaving because a fellow index member, Equity Residential , is acquiring it.

Investors treated the announcement as a windfall. Reddit shares were up about 13% in Friday trading, near $179.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

Even after the jump, the stock sits roughly 37% below its 52-week high of $282.95.