Shares and options of Google Inc. (GOOG) were active on Friday on market talk that the Web search provider would be added to the Standard & Poor's 500 index (search) after the close of trading on Friday, said Paul Foster, who tracks the options market at FlyOnTheWall.com.
Shares of Google were up $6.91 or 2.2 percent to $316.53 on Nasdaq in mid-afternoon trade and volume was relatively brisk above 6 million shares.
S&P did not confirm the move: "We don't comment on specific companies with respect to any index action, including whatever company might replace Gillette," said David Blitzer, chairman of S&P's index committee.
Google recently completed the largest secondary offering ever, which many in the market perceive as removing the final obstacle that had stood in the path of its addition to the S&P — having too small a public float of shares.
"The first impact of Google's addition to the S&P is that it will lift the entire weighting of the technology sector in the index," said Ray Rund, managing director at ShakerInvestments, with $800 million under management.
"More than that, given that Google's earnings are rising at a fast pace — and faster than Gillette for sure — having the company in the index will lead analysts to change their earnings outlook and estimates for the entire group of stocks. I can't tell you, though, if this is going to generate more buying in the stock in the near term," he said.
The so-called "index effect" happens when a stock is added to the S&P 500, triggering buy orders from portfolio managers who invest in the stocks included in the index. As of December 2004, there were $1.2 trillion dollars indexed to the S&P 500.
But over the years, the index effect has diminished. Investors also have speculated for some time that Google would be added to the index.