Olo Inc.'s Exit from the S&P TMI Index: A Case Study in Liquidity and Sentiment Shifts

The recent removal of Olo Inc. (NYSE: OLO) from the S&P Total Market Index (TMI) has sparked renewed debate about the interplay between index composition and market dynamics. While Olo's delisting stems from its acquisition by Thoma Bravo at $10.25 per share—a $2.0 billion buyout—its exit underscores broader structural shifts in how index inclusion and exclusion influence investor sentiment and liquidity. This case offers a lens to examine the evolving mechanics of capital flows in an era of heightened market concentration and regulatory recalibration.

The Mechanics of Index Exclusion

The S&P TMI, represented by the S&P Composite 1500, has recently tightened its eligibility criteria. As of July 1, 2025, the S&P 500 now requires a minimum unadjusted market capitalization of $22.7 billion, while the MidCap 400 and SmallCap 600 have similarly adjusted thresholdsS&P Dow Jones Indices Announces Update to S&P Composite 1500 Market Cap Guidelines^[1]. These changes reflect S&P's effort to align indices with percentile-based benchmarks, ensuring they capture firms at the 85th, 93rd, and 99th percentiles of the TMI universeS&P Dow Jones Indices Announces Update to S&P Composite 1500 Market Cap Guidelines^[1]. However, Olo's removal is not due to a failure to meet these criteria but rather its delisting following the Thoma Bravo acquisition.

Index exclusions, whether due to delisting or failure to meet thresholds, often trigger liquidity shocks. Institutional investors and index funds typically rebalance portfolios to maintain alignment with benchmarks, leading to abrupt shifts in demand. For example, companies that fall below S&P 500 thresholds historically experience a 15–20% drop in trading volume within weeks of exclusionFinancial Intermediaries and the Changing Risk Sensitivity of Global Liquidity Flows^[2]. This liquidity contraction is exacerbated when the excluded stock lacks sufficient retail or active institutional ownership to offset the departure of index-linked capital.

Investor Sentiment and the "Index Premium"

The psychological impact of index inclusion or exclusion is well-documented. Stocks added to major indices often see a short-term price boost, driven by passive inflows and perceived credibilityA Closer Look at Concentration^[3]. Conversely, exclusions can erode confidence, particularly if the removal is perceived as a signal of declining quality or relevance. Olo's case is unique: its buyout price of $10.25 per share has drawn scrutiny, with at least one analyst setting a $11.00 target and a shareholder alert questioning fairnessOLO Shareholder Alert: Kaskela Law LLC Investigation^[4]. While the delisting is not a failure of fundamentals, the perception of undervaluation could amplify sentiment risks.

Historical precedents highlight the fragility of liquidity post-exclusion. During the 2022 equity selloff, the "Magnificent 7" accounted for over 28% of the S&P 500's total market cap, creating a concentration akin to the dot-com eraMarket Outlook 2025: Navigating Cross-Currents^[5]. When these stocks underperformed, the broader index's liquidity dynamics became increasingly sensitive to their movements. Similarly, Olo's exit from the TMI, though a smaller event, could ripple through its investor base, particularly if the buyout is viewed as a capitulation to private equity rather than a strategic rebalancing.

Macroeconomic Context and Systemic Risks

The broader macroeconomic environment further complicates the picture. The Federal Reserve's hawkish stance and rising Treasury yields—up 40 basis points in December 2024 alone—have tightened liquidity conditions across asset classesAugust Market Review - Rates Set the Price, Liquidity Sets the Terms^[6]. In this climate, the liquidity of smaller or mid-cap stocks, which often rely on index-linked flows, becomes more vulnerable. For Olo, the loss of S&P TMI inclusion removes a critical source of institutional demand, potentially amplifying volatility in its remaining public float (though minimal, given the buyout).

Moreover, the post-2020 evolution of global liquidity dynamics adds another layer of complexity. The risk sensitivity of cross-border bank loans has diminished post-GFC, while emerging market debt remains highly volatile to shocksUS Corporate Default Risk Reaches Post-Crisis High^[7]. These trends suggest that liquidity shocks from index exclusions may now propagate more rapidly, especially in a world where monetary policy tightening and geopolitical uncertainties are compounding fragilities.

Conclusion: A Cautionary Tale for Passive Capital

Olo's removal from the S&P TMI Index is a microcosm of larger forces reshaping capital markets. While the company's delisting is driven by private equity activity, its exit highlights the growing interdependence between index mechanics, liquidity, and investor psychology. For investors, the lesson is clear: in an era of concentrated indices and constrained liquidity, the line between index inclusion and exclusion is not just a technicality—it is a liquidity lever with real market consequences.