GM To Climb Back Into S&P 500

June 05, 2013

GM’s climb back into good grace will be rubber-stamped when it rejoins the S&P 500 on June 6.

General Motors, whose tumble into bankruptcy in 2008 at the height of the financial crisis inspired fear that the best was in the rearview mirror for the United States, on Thursday will instead become an emblem of the slow economic recovery when it rejoins the S&P 500 Index five years after receiving $50 billion in government money and being booted from the S&P at the nadir of its troubles.

GM (NYSE: GM) thus on June 6 becomes a constituent of the S&P 500 and therefore part of some of the biggest and most liquid exchange-traded funds in the world, including the $138 billion SPDR S&P 500 ETF (NYSEArca: SPY), the $43 billion iShares Core S&P 500 ETF (NYSEArca: IVV) and the nearly $10 billion Vanguard S&P 500 ETF (NYSEArca: VOO).

GM on that day will also become part of the S&P 100 Index, as will insurer American International Group (NYSE: AIG), another company that has climbed back into solvency and credibility after a devastating dalliance with mortgage-related credit default swaps that brought AIG and even Goldman Sachs to the brink. Only a separate federal bailout totaling more than $180 billion kept the two from going under.

The S&P 100 Index is perhaps more a benchmark than an widely used index, as not many ETFs are built around it, though it is the basis of the $4.15 billion iShares S&P 100 Index Fund (NYSEArca: OEF).

GM’s and AIG’s return to credibility does serve as a powerful example of how much the economy has healed since the dark days of 2008 and 2009. The jobless rate has been dropping, and companies like GM are selling cars again.

While the continuing heavy involvement of the Federal Reserve in the economy with its aggressive “quantitative easing” programs aimed at keeping the costs of borrowing unusually low do give pause, there’s no doubt things are getting better.

Not least, it appears the possibility of a full meltdown has been significantly reduced because the reckless use of CDSs is now lower, making many of the risks that do remain in the economy much easier to take measure of.

Out Of The Indexes

Ketchup maker H.J. Heinz Co. (NYSE: HNZ), which is being taken private by a group including Warren Buffett’s Berkshire Hathaway, will be dropping out of both the S&P 500 and the S&P 100 to make way for GM.

AIG meanwhile will replace the oil services firm Baker Hughes Inc. (NYSE: BHI) in the S&P 100 Index, whose market valuation has dropped below $21 billion and isn’t representative of the mega-cap space, S&P Dow Jones Indexes said in a press release.

Baker Hughes will, however, remain in the S&P 500.

 

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