Why Sotera Health Stock Crushed the Market Today

What happened

Sotera Health‘s (SHC 10.93%) shares were quite the picture of stock market health on Monday. The company’s stock leaped more than 10% higher on the day, thanks to its graduation to a well-known and much-tracked equity index.

So what

That morning, S&P Global (SPGI 0.81%) unit S&P Dow Jones Indices made one of its periodic announcements that it is slightly reconfiguring several of its indexes. Due to changes in the S&P MidCap 400Sotera and its healthcare sector peer Shockwave Medical (SWAV 11.86%) will soon be components of that index.

Image source: Getty Images.

Sotera and Shockwave are replacing clothing retailer Urban Outfitters (URBN 0.23%) and tech company LiveRamp Holdings (RAMP 0.54%). The latter two companies are moving down one peg, so to speak, to the S&P SmallCap 600 index.

In contrast to Urban Outfitters and LiveRamp, neither Sotera nor Shockwave are being “migrated” from another S&P index.

Sotera and Shockwave’s graduation to the S&P SmallCap 600 will, in addition to a set of other S&P index component shifts, take effect prior to market open on Tuesday, June 21.

Now what

It’s important to note that by being freshly included in the index, nothing will change fundamentally for Sotera’s business. The stock will, however, become a bigger target for the great many index funds that regularly comb the listings of such indexes for securities to invest in.

While much research has found that the “index effect” on a stock’s price is somewhat overstated, it is certainly a heartening development for Sotera – hence the market’s bullish reaction to the news.

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