Shares of Meritor (NYSE: MTOR), a global supplier of drivetrain, braking, and other aftermarket automotive solutions for vehicles, jumped as high as 16% Tuesday morning after markets digested the announcement that Meritor will join the S&P SmallCap 600 index.
The announcement actually contained additional moves. NexPoint Residential Trust (NYSE: NXRT) will replace Avon Products, as the latter is expected to be acquired pending remaining conditions, and Meritor will replace The Medicines Company (NASDAQ: MDCO), as the latter is also being acquired by Novartis. At first glance this development is a positive for Meritor as well as NexPoint, because being included in the index will put it in front of more investors and, in theory, will raise demand for the stock. And while there is generally a short-term reaction of stocks moving higher when they enter the index, while those getting the boot trade lower, research shows the movement doesn't last and the long-term trend of the stock is still determined by the company's financial potential.
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