Shifting Market Themes: From SpaceX Activity to Iran Policy and Fed Expectations
(BLOOMBERG, Carmen Reinicke) — After SpaceX and its bankers pulled off the largest-ever IPO without a hitch last week, investors are returning their focus back to Earth.
With a new week of trading kicking off, Friday’s SpaceX buzz is giving way to optimism about a peace agreement between the US and Iran and the potential end to the economic damage associated with the war.
Futures on the S&P 500 Index rose 1.2% Sunday night in New York after the US and Iran reached an agreement to reopen the Strait of Hormuz, setting the stage for talks on Tehran’s nuclear program.
The next major event risk looms on Wednesday, when the Federal Reserve votes on interest rates. The decision will be followed by the first press conference for the central bank’s new chairman, Kevin Warsh. He was handpicked by President Donald Trump, who has made it no secret he believes the Fed should aggressively lower interest rates despite the pickup in inflation triggered by his decision to wage war on Iran.
“Even though the new chair is not a fan of the press conferences or Fed speak in general, it will certainly be intriguing to see how he handles his first press conference,” said Art Hogan, chief market strategist at B Riley Wealth.
Of course, the follow-through in markets for SpaceX lingers as an important read for investor sentiment, given how closely linked Elon Musk’s company is to the artificial-intelligence theme that has driven benchmark indexes to records this year despite the jump in oil prices caused by the war and Iran’s blockage of the Strait of Hormuz.
It’s also being viewed as a potential referendum on the IPOs of Anthropic PBC and OpenAI, two huge competitors that could go public as soon as this year with valuations in the neighborhood of $1 trillion each. The huge amount of equity supply represents a bit of a paradigm shift for a stock market where massive buybacks that shrank share counts served as a strong tailwind for years.
“A poor reception for SpaceX would have been a setback, particularly for the other mega names in the IPO queue,” said Dec Mullarkey, managing director at SLC Management. Friday’s successful trading “will help keep those prospects alive and AI momentum intact.”
Shares of the company, formally known as Space Exploration Technologies Corp., opened at $150, above their IPO price of $135. They rallied more than 30% to an intraday high, before paring some gains and closing up 19% at $160.95. That left the company’s market capitalization at about $2.2 trillion, meaning it ended its first day on the stock market as the sixth-highest valued public company in the world.
The market’s internal plumbing worked smoothly. More than 522 million of its shares traded on the day of their debut, approaching the number that was sold in the $75 billion offering. While some investors received small portions of their total requests for shares or missed out completely, many were glad to get any piece of the company.
“SpaceX, as long as trading continues to be orderly and we don’t see any major price swings, will probably fade into the background to a degree,” said Ed O’Gorman, CEO of River Wealth Advisors, which manages $1.4 billion in assets.
Still, investors scrutinizing the broader market will continue to keep at least one eye on SpaceX stock for some time, especially if any volatility erupts as more shares enter the market when early investor lockups expire in the coming months. History shows that megacap IPO performance can be mixed after one year, and trading can be very turbulent: The average drawdown is 55%, according to a Truist Wealth analysis.
Shares of Cerebras Systems Inc, which had the second-largest IPO of the year in May, jumped 68% in their trading debut but have slipped more than 30% from that level. The stock is still trading above its IPO price.
Some investors have preferred to stay on the sidelines for now when it comes to SpaceX, waiting for index inclusion and an eventual better entry point. SpaceX shares should be added to the Nasdaq 100 index in the next few weeks, which would give many investors who own funds tracking the index exposure without having to buy the individual stock.
“I’m happy to kind of sit tight as an investor because I will own it by default,” said Talley Leger, chief market strategist of The Wealth Consulting Group, which manages $7 billion in assets. “I’ll play the odds and the history. I’m happy to wait for a pullback in the next, we’ll call it three to six months, and buy it on the secondary market perhaps at a discount.”
And while SpaceX’s big splashdown turned out not to cause any damage in the broader market so far, there’s no guarantee the converse will be true: Investors holding shares of the new kid on the block would be wise to tune into the macroeconomic picture and Fed speak, especially in the coming weeks.
“Below the surface there’s other things that are happening in the market,” said Anthony Saglimbene, chief market strategist at Ameriprise. “There’s obviously things like inflation data that is not great in terms of adding price pressures in the market.”
The upcoming Fed meeting will be “highly important,” he said.
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