Reddit (RDDT) Joins the S&P 500 Tuesday and Jumped 11%…
S&P Dow Jones Indices announced after Thursday’s close that Reddit (NYSE: RDDT) will replace AvalonBay Communities (NYSE: AVB) in the S&P 500, effective prior to the opening of trading on Tuesday, August 18.
The stock closed the regular session at $158.12, up 3.04%, then rose as much as 11% in after-hours trading. It held the move overnight: RDDT was quoted at $176.07 in Friday’s pre-market, up 11.35% from Thursday’s close, per TradingView data at 13:31 GMT+1. If you searched Reddit’s stock price this morning, that jump is why the number looks unfamiliar. Whether $176 is a level worth paying is the question FinanceFeeds’ $275 bull case vs $143 bear case was built to answer.
RDDT over the past month. Thursday’s after-hours jump to the $176 area retraces only part of the July 31 earnings drop from about $180 to the mid-$130s. Source: TradingViewWhy the Spot Opened Up
The index committee did not rotate real estate out to make room for social media. Per the release, S&P 500 constituent Equity Residential (NYSE: EQR) is acquiring AvalonBay in a deal the index provider describes as “expected to be completed soon, pending final conditions,” and the combined company will be renamed Vivmark Residential (NYSE: VMRK) and will remain in the S&P 500. Two apartment REITs (real estate investment trusts) are becoming one, and the merger opened a seat. Reddit, classed under Communication Services, fills it.
The same release runs the identical play one index down: Sun Communities will replace Webster Financial in the S&P MidCap 400 on August 20, with Banco Santander acquiring Webster. CNBC noted that Reddit becomes only the second pure-play social media company in the benchmark index, after Meta.
How the Inclusion Pop Works
Funds tracking the S&P 500 have to own Reddit by the time the change takes effect. Everyone else could buy Thursday night. The gap between those two clocks produced the after-hours move.
Two pieces of research frame what that gap is worth, and they point in slightly different directions. Goldman Sachs found the announcement-day effect had revived after fading through the late 2010s, with 2025 additions including Block, Coinbase and DoorDash outperforming the equal-weight S&P 500 by an average of 7.4 percentage points on announcement day, as reported by ETF Stream.
Goldman ties the revival to the subjective side of index membership, where a committee retains some control over who gets added, so a surprise name can move hard. Reddit, a retail-heavy stock added because of an unscheduled merger rather than a predictable rebalance, fits that profile.
A Harvard Business School working paper by Robin Greenwood and Marco Sammon, “The Disappearing Index Effect,” goes further back: average inclusion returns near 3.4% in the early 1980s have declined toward zero over the decades, and the authors find no stable relationship between tracker purchases and inclusion returns. The mechanical buying is real and the profit from front-running it gets taken the minute the press release lands, and Thursday night it was.
Investor Takeaway
The after-hours pop to $176 is the inclusion effect happening in real time, and Goldman’s data shows the announcement-day gain averaged 7.4 percentage points for 2025 additions, with nothing reliable left after the effective date.
Reddit’s Google Problem Is Still There
Reddit reported second-quarter results on July 30: revenue of $805 million, up 61% year over year, diluted earnings per share (EPS) of $1.25, and an eighth consecutive quarter of revenue growth above 60%. The stock crashed anyway. In the shareholder letter, CEO Steve Huffman addressed the traffic Reddit gets from search, writing that “search referrals were choppy in the quarter” and that traffic grew more volatile later in the quarter. Investors read that as the Google dependency flashing, and FinanceFeeds covered why a 61% growth quarter sold off anyway.
Even after Thursday’s jump, the tape carries that verdict: RDDT is down 19.81% over the past month and 31.90% year to date, per TradingView data on Friday. The inclusion pop retraces part of the earnings drop and none of the reason for it. One detail from the letter ages well this week: Reddit bought back 1.5 million shares in Q2 at an average of $157.57, within cents of Thursday’s close.
Investor Takeaway
Index inclusion is an ownership event, not a fundamentals event, so it changes who holds Reddit without touching the Google referral question that cut the stock roughly a third this year.
What to Watch on August 18
What remains observable Tuesday is the flow, because passive funds and index trackers are required to hold every constituent and must complete their Reddit positions around the effective date. Heavy volume with the price holding the $176 area would mean that supply got absorbed. Volume with a fade back toward $158.12 would mean the announcement-night buyers were selling to the trackers, which is what the Goldman and Greenwood-Sammon findings describe.
Membership also chains RDDT to the index tape itself, one that has spent the summer trading Fed odds rather than earnings, as FinanceFeeds’ coverage of one trader’s unlucky S&P 500 short keeps demonstrating. The variable that decides where Reddit trades in six months is unchanged by any of it: the Google licensing renewal and the referral trend behind Huffman’s caution. Tuesday settles who owns the stock. It settles nothing about the business.