Introduction
The ongoing conflict between President Donald Trump and Tesla CEO Elon Musk has turned into a sensational narrative, capturing both political and financial interests. This feud has had significant ramifications for Wall Street, particularly impacting the stock performance of some of the largest companies.Context
On Thursday, Tesla's shares plummeted by 14% amid a public spat between Musk and Trump, with the President threatening to revoke government contracts linked to Musk’s businesses. Although the stock experienced a modest rebound on Friday, the sharp decline on Thursday adversely affected major equity indexes heavily influenced by high-market-value companies.Developments
Tesla's downturn was responsible for approximately 50% of the declines in both the S&P 500 and the Nasdaq 100, which dropped by 0.5% and 0.8% respectively. The S&P 500 is often viewed as the benchmark for the U.S. stock market, while the Nasdaq 100 is a key component of the Invesco QQQ Trust, one of the most traded ETFs in the market.Robert Pavlik, a senior portfolio manager at Dakota Wealth, noted, "It's a widely held stock." The significant sell-off of such a notable stock not only affects the index metrics but also influences investor psychology.
This decline highlights concerns voiced by investors regarding the vulnerability of indexes to fluctuations from a limited number of megacap stocks. Tesla, while the least valued among the tech giants dubbed the "Magnificent Seven," which also includes companies like Apple, Microsoft, and Nvidia, contributed to guiding equity index uptrends in 2023 and 2024. This group, accounting for nearly one-third of the S&P 500 as of Thursday's market close, has faced challenges in 2025 yet shows signs of recovery.
Investors holding the S&P 500 or Nasdaq 100 are advised to stay alert to their significant exposure to a narrow group of stocks, as explained by Todd Sohn, an ETF and technical strategist at Strategas.
Tesla's stock decline on Thursday erased about $150 billion from its market capitalization, with a weight of 1.6% in the S&P 500 and 2.6% in the Nasdaq 100. Although shares rebounded slightly on Friday, increasing by 5% during midday trading, Tesla’s market value sits at approximately $970 billion. In contrast, tech giants Microsoft and Nvidia hold weights of 6.9% and 6.8% in the S&P 500, respectively.
Since mid-December, Tesla shares have decreased by about 37%, while the S&P 500 has only dropped around 1% overall, indicating a waning influence on the index.
Tesla also holds a substantial role among ETFs, appearing in about 10% of the total roughly 4,200 ETFs available, as noted by Sohn. This includes notable funds like the Consumer Discretionary Select Sector SPDR Fund and the Roundhill Magnificent Seven ETF, which experienced drops of 2.5% and 2.6% respectively on Thursday.