FA Center: Why adding Twitter to the S&P 500 could be a ‘sell’ signal for the stock

Twitter’s stock jumped on news that the company is being added to the S&P 500.

This may be a good time to sell Twitter TWTR, +5.07%

That’s because stocks added to major U.S. stock market benchmarks such as the S&P 500 SPX, +0.07% tend to lag the market over the next several years. In fact, the new stock in a benchmark frequently underperforms the stock it replaced.

Twitter’s addition to the S&P 500 is a perfect opportunity for investors to learn about the risks inherent in popular companies that are riding high and the attractive long-term potential of stocks that are out of favor.

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