Reddit Joins the S&P 500: A Buy Signal in Name Only
12.63% in a single session. That’s what Reddit clawed back on 14 August, after the announcement that it was joining the S&P 500.
But is joining an index a buy signal? On 31 July, the stock lost 21% in the wake of its shareholder letter. And three companies recently added to a major US index make the case for caution.
Key points
- Reddit joins the S&P 500 before the open on Tuesday 18 August, taking the place of AvalonBay Communities, absorbed the day before by Equity Residential in a merger.
- The buying by index funds is mechanical: J.P. Morgan puts it at 16.7 million shares, around 8% of the share count. The stock jumped 12.63% on 14 August, on seven times its usual volume.
- The 21% fall on 31 July was about the business itself: results beat consensus, but traffic coming from search engines weakened and the US audience shrank.
Reddit replaces a property group in the S&P 500
S&P Dow Jones Indices announced on 13 August, after the close, that Reddit (NYSE: RDDT) would join the S&P 500. It takes effect before the open on Tuesday 18 August. [1]
Reddit takes the place of AvalonBay Communities (NYSE: AVB), which is merging with Equity Residential, itself an S&P 500 member. Shareholders approved the deal with more than 99% of votes cast, and closing is set for this Monday 17 August.
The combined group will be called Vivmark Residential and will trade under the ticker VMRK when the market opens on 18 August. The index keeps its exposure to residential property, but concentrates it in a single holding.
The social network joins the Communication Services sector and becomes the second company in the S&P 500 whose core business is social media, alongside Meta. [2] It also hosts r/wallstreetbets, the forum that set off the GameStop surge in January 2021.
Why funds had to buy 16.7 million shares
A physically replicating ETF has to mirror the index it tracks, line by line and in the same proportions. When that composition changes, the manager adjusts the portfolio, without having to judge whether the newcomer is worth owning.
J.P. Morgan puts that buying at 16.7 million shares, close to three times the stock’s average daily volume since it listed in March 2024. [3]
The announcement landed on 13 August after the close, and the market answered the next session. On 14 August, the stock finished at $178.09, up 12.63%, on more than 21 million shares traded, seven times the average of the four previous sessions. [5]
Still, Reddit’s market cap stood at only $34.26 billion at the 14 August close, which gives it a weight of around 0.05% in the index. A €10,000 portfolio tracking the S&P 500 will hold about €5 of it. NVIDIA, the largest line in the index, takes up close to 8% on its own.
So anyone holding an S&P 500 ETF becomes a Reddit shareholder on Tuesday morning without actively choosing to, and the stake is too small to show up in their performance.
Reddit in the S&P 500: buy signal or red flag?
Reddit’s entry into the flagship US index drove that rise. Can a move built on forced buying hold?
Take three companies that have joined a US index since late June. All three fell once they were in.
| Company | Index | Effective date | Close that day | Close on 14 August | Change |
|---|---|---|---|---|---|
| Flex | S&P 500 | 22 June 2026 | $155.81 | $126.16 | -19.0% |
| SpaceX | Nasdaq-100 | 7 July 2026 | $149.47 | $140.00 | -6.3% |
| Ferguson Enterprises | S&P 500 | 5 August 2026 | $255.25 | $244.94 | -4.0% |
None of the three trades above its close on the day it joined its index. Over the same periods, the S&P 500 gained 4.3% since 22 June and 0.9% since 5 August, measured on the SPY ETF.
S&P announced Ferguson’s entry on 31 July and made it effective on 5 August. [6] Between those two dates, the stock gained 9.04%, with 46.1 million shares traded on 4 August, nearly 22 times the average of the sessions that followed. Since the effective date, it has fallen 4.04%.
Flex moved up from the S&P MidCap 400 to the S&P 500 on 22 June, at the quarterly rebalancing. [7] Funds tracking the mid-cap index already held the stock, which cuts the fresh demand the move creates.
Even if these share prices seem to point the same way, there’s no telling for certain where Reddit goes from here.
Other things are worth weighing before you buy the stock. Robin Greenwood and Marco Sammon, of Harvard Business School, measured the premium a stock used to earn from joining an index. It reached 7.4% on average through the 1990s. It has fallen to 0.3% since 2010. [8]
The market now anticipates index changes weeks in advance, and prices reflect the news before the effective date. We covered this when SpaceX joined the Nasdaq-100.
Their study doesn’t prove a lasting decline after admission though: the authors note that this scenario is hard to test. Joining an index is neither a reason to buy nor a reason to sell.
Two weeks earlier, the stock lost 21%
On 31 July, Reddit closed at $140.67, down from $178.04 the day before, a fall of 20.99%, on nearly 30 million shares traded.
Yet the second-quarter results, published the evening before, had beaten the analyst consensus: $805 million in revenue against $730 million expected, and $1.25 in earnings per share against $0.95. [9]
That marks Reddit’s eighth straight quarter of growth above 60% [4] :
- revenue up 61% year on year;
- net profit of $253 million, or 31% of revenue, more than double a year earlier;
- gross margin of 91.3%;
- free cash flow of $261 million.
What knocked the stock down wasn’t the income statement, it was one sentence about traffic. In his shareholder letter, co-founder and chief executive Steve Huffman describes search referrals as “choppy” over the quarter and traffic as “more volatile” later on. [10]
The letter says product work made up for the headwinds from search, but Reddit’s dependence on Google remains investors’ main worry.
The decline is concentrated in the United States.
| Average daily users | Q1 2026 | Q2 2026 |
|---|---|---|
| Worldwide | 126.8 M | 130.3 M |
| International | 73.3 M | 77.1 M |
| United States | 53.5 M | 53.2 M |
| United States, logged out | 30.3 M | 30.1 M |
Both logged-in and logged-out visitors fell in the US. International markets added 3.8 million daily users over the same period, and accounted for all of the quarter’s growth.
ETF or stock: two very different levels of exposure
If you already hold an S&P 500 ETF, there’s nothing to do: Reddit enters the fund on Tuesday morning, for 0.05% of its assets. Your exposure stays small.
The other way to own Reddit is to buy the stock. RDDT trades on the NYSE, in dollars, and a broker with access to US markets, such as Interactive Brokers, is all you need.
Reddit gained 12.63% in the session that followed the 13 August announcement. Buying after that jump means paying for a rise the market has already priced in. Even then, the stock sat 37% below its high for the year, at $282.95.
Reddit in the S&P 500: what to remember
When a stock like Reddit joins an index, index funds are forced to buy it, which drives sharp moves in price and volume. Those moves pass, and on their own they don’t decide where a stock goes.
Other things about the company deserve a look before you place your order.
- US users fell over the quarter and Reddit calls its search traffic uneven. If referrals from search engines keep weakening, the 100 million mark the company has set for itself will be hard to hold.
- Revenue is still growing 61% year on year, net margin reaches 31%, and the company is buying back its own shares. If the US audience starts growing again, the story changes.
Next date to watch: third-quarter results this autumn.
Article sources
Audrey holds a Diploma in Accounting and Financial Studies (DECF) and has over 15 years of professional experience in the banking and accounting sectors.
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