Summary
- SpaceX debuted as the largest IPO in history, rapidly becoming the 6th largest global stock, but it will not join the S&P 500 until at least June 2027.
- Nasdaq 100 and Russell 1000 will add SPCX much sooner, creating index divergence and potentially shifting passive investor capital away from the S&P 500.
- Historical IPO drawdowns and unique SPCX lockup provisions suggest heightened volatility and capital rotation, especially as mega-cap tech performance diverges.
- Momentum gauges signal increased volatility ahead; rotation to value and diversified, risk-premium strategies are recommended for strong risk-adjusted returns.
- All new long-term Piotroski-Graham value, forensic, CFO insider trading, and dividend portfolios midyear release for members at the end of June.
Introduction
The goal of forecasting is not to predict the future, but to tell you what you need to know to take meaningful action in the present” ~ Paul Saffo.
Timing matters, and it matters greatly: I have spent the last 35 years trading, researching, and constructing algorithms to identify and leverage the value across fundamental, technical, and behavioral finance models. Of the ten portfolio models designed for optimal portfolio mixes for members to beat the market at Value & Momentum Breakouts, eight come from enhancing well-tested anomaly research in published financial journals. All the models continue to outperform the S&P 500 in live forward testing here on Seeking Alpha, and again this year.
The S&P 500 Will Fly Without SpaceX for at Least the Next 12 Months
As the world watched last week, Space Exploration (SpaceX) (SPCX) launched the largest and most successful IPO by total capital raised on its first day of trading Friday. How this will impact S&P 500 followers and passive index traders is a big question for those seeking to capture the largest market value in the world.
10 Largest Stocks in the World by Market Cap
Current market cap listings as of the close Friday, but SpaceX is still pushing higher into position as the 6th largest stock in the world after hours.
Space Exploration Technologies has already crossed above the $2 trillion market cap and is still climbing quickly toward the 6th largest stock in the world expected by Monday. However, like Taiwan Semiconductor (TSM), it is not eligible for inclusion in the S&P 500 (SPY) (SPX), but for different reasons. SpaceX must wait at least until June 2027 for consideration of addition to the S&P 500.
10 Largest Stocks on the S&P 500
Only U.S. stocks are permitted on the S&P 500 index, and only after 12 months of trading from IPO will they be considered for inclusion on the major index. The Nasdaq 100 (QQQ) and Russell 1000 (IWB) are expected to add SpaceX much sooner than the S&P 500 with fewer restrictions to a more rapid inclusion. These two indices could include SpaceX as quickly as 15 days and 5 trading days, respectively. This will fuel additional purchases by those indices and passive index followers in the coming days while the S&P 500 watches from the sidelines.
The major implication of this coming divergence between the Nasdaq Composite/Nasdaq 100 and S&P 500 indices is that they will become less of a mirror image of each other after years of nearly identical weightings on nearly identical mega cap stocks. Passive investors may have to make a serious decision on which index to follow or consider adopting signals to their long-term investment approach.
However, the S&P 500 index’s loss could be its gain by avoiding an average 1-year -31% return of the major IPOs in the last 15 years.
As history shows, “a great company doesn’t always make for a great investment at any price” ~ Charlie Bilello. Put another way, the 20 largest IPOs of the last 20 years all had average max drawdowns of -61.8% within 1 year of issuance. Most likely, the pre-IPO SpaceX shareholders are also keenly aware of these factors.
