Strategy’s Perpetual Preferred Stocks May Be Front Running S&P 500 Inclusion

Strategy (MSTR)’s recent surge in share prices, particularly its perpetual preferred shares (STRK, STRF, STRD), is largely attributed to market anticipation of its potential inclusion in the S&P 500 index. This expectation stems from Bitcoin’s record-high monthly close in June, reaching $107,750. Analysts, including Jeff Walton, estimate this Bitcoin price translates to a significant positive earnings impact for MSTR, boosting earnings per share to approximately $39.50. This figure surpasses the final hurdle for S&P 500 inclusion—achieving a net positive earnings figure over the past four quarters.

The analyst who authored this piece holds shares in MSTR, adding a layer of perspective to the analysis. The inclusion in the S&P 500 is not officially announced until September, yet the market is reacting proactively. MSTR’s common stock experienced a 5% increase on Monday, reaching its highest point since May 22nd, exceeding $400. However, the preferred shares witnessed considerably more substantial gains. STRK climbed 15%, reaching a price of $121, while STRF increased by 7.5%. STRD also saw a 3% rise.

These preferred shares offer attractive yields, significantly higher than the Federal Reserve’s target rate of 4.25%-4.5%, currently standing at 6.6% for STRK, 8.8% for STRF, and 11.1% for STRD. These high yields, combined with President Trump’s past calls for lower interest rates, are likely contributing factors to investor interest. Since its launch on February 6th, STRK has delivered a remarkable 42% return, outperforming both Bitcoin’s 11% gain and the S&P 500’s 2% increase during the same period. These returns exclude dividend payments.

The significant price movements in MSTR and its preferred shares raise the question of whether the market is “front-running” a potential S&P 500 inclusion. The anticipation of increased institutional investment following S&P 500 inclusion is a primary driver of this market activity. Membership in the index grants access to a wider pool of institutional investors who are restricted from investing in companies not included in the benchmark.