Shares in Reddit, Inc. (NYSE: RDDT) are surging in premarket trading this morning after S&P Dow Jones Indices announced that the social media platform will join its prestigious S&P 500 Index.
Here’s what you need to know about Reddit’s ascension to the S&P, and why it’s giving RDDT shares a much-needed boost.
What is the S&P 500?
The S&P 500 (aka Standard and Poor’s 500) is one of the three major stock indices in the United States, the others being the Dow and the Nasdaq-100.
Indices are distinct from stock exchanges, such as the New York Stock Exchange, in that they are not markets where stocks are bought and sold. Instead, the indices track how certain stocks are performing in the market, which can serve as a barometer of how the economy, or parts of it, is performing.
For example, the Dow tracks the 30 largest blue-chip companies, the Nasdaq-100 tracks the 100 largest non-financial companies (and is heavily tech-weighted), and the S&P 500 tracks 500 major companies.
It is because of the S&P’s broad selection of constituent companies—and the sheer number of them—that the index is arguably the most representative of how the broader U.S. economy is performing.
An index can have no more or no fewer companies than its set number (30 for the Dow, 100 for the Nasdaq-100, and 500 for the S&P). So for one company to join, another must be removed from the index.
And that’s exactly what is happening in Reddit’s case.
Why is Reddit joining the S&P 500?
Yesterday, the S&P 500’s owner, S&P Dow Jones Indices, announced that Reddit will join the closely watched index.
The reason for this is that there will soon be a vacancy in the S&P 500, leaving it with just 499 companies. So, S&P Dow Jones Indices has selected Reddit to fill that vacancy.
The vacancy is being caused by the upcoming removal of a current S&P 500 company, the real estate investment trust AvalonBay Communities, Inc. (NYSE: AVB).
AvalonBay didn’t do anything wrong, nor did its business experience a sudden downturn that has spurred its removal from the S&P 500. Instead, the company is merging with another S&P 500 company, Equity Residential (NYSE: EQR), and the two will then form a new company, Vivmark Residential (NYSE: VMRK).
That merger will leave the S&P 500 index one company shy of 500, and to get that number back up, the committee that chooses which companies are included in the S&P 500 has selected Reddit to fill the vacancy.
Why did the S&P 500 choose Reddit?
S&P 500 companies aren’t just chosen for inclusion on the index because they are well-known or liked by the choosing committee.
Instead, the company must meet strict selection criteria in order to be eligible for inclusion. S&P Global notes that this includes “financial viability, public float, adequate liquidity, and company type.”
When does Reddit actually join the S&P 500?
Though S&P Dow Jones Indices announced yesterday that Reddit will join the S&P 500 index, that ascension won’t actually happen until next week.
The S&P Dow Jones Indices says that Reddit will join the S&P 500 prior to the opening of markets on Tuesday, August 18.
How have Reddit shares reacted to the news?
Really well. As of the time of this writing in premarket trading, Reddit shares are currently up around 11.6% to $176.45 per share. Yesterday, RDDT shares closed at $158.12.
It’s important to note that the addition of a company to the S&P 500 doesn’t actually affect the company’s underlying financials. Yet if that’s the case, why are Reddit shares surging?
It’s because passive index funds and exchange-traded funds (ETFs) that track the S&P 500 are legally required to own shares in those S&P 500 companies.
So when a company joins the S&P 500, it results in a forced buying of that company’s shares by those passive index funds and exchange-traded funds. This forced buying creates demand, which raises the price a single share is sold for.
And this S&P 500-fueled bump for Reddit is good news for Reddit investors. Before today’s double-digit stock price rise, RDDT shares have plunged more than 31% since the beginning of 2026. A large part of that decline was driven by investor fears that Google’s AI overviews, which now appear at the top of all Google search results, could significantly dampen traffic to Reddit’s website.
Of course, today’s S&P 500 bump doesn’t eliminate the possible negative traffic impact Google’s AI overviews may have. Nevertheless, investors know that, for a short while at least, funds will have to stock up on RDDT shares ahead of Reddit’s August 18 ascension to the S&P 500, which is already resulting in near-term share price increases.
