A birthday, a wedding, and a funeral... Protect the pursuit... An overhyped stock... From gatekeepers to subprime-equity pushers... Rotating into the 'S&P 493'...
Last weekend, we celebrated a birthday, a wedding, and a funeral...
The birthday, of course, was that of the United States as an independent nation.
On July 4, 1776, the Second Continental Congress adopted the Declaration of Independence. Most of the representatives signed the declaration on August 2. But we say the country was born on July 4 because that's when the declaration was finalized.
Of all the talk I (Dan Ferris) have heard about the declaration over the years, one opinion that sticks out to me is from Simplify Asset Management's Michael Green, who discussed a critical new idea in the founding document: the pursuit of happiness.
Green writes:
The document deliberately declines to promise the destination and instead sanctifies the striving. To my knowledge, no other nation on Earth embeds such an action in its founding charter. Constitutions the world over promise conditions: security, equality, order, dignity. Some promise defensive actions – the French guaranteed "resistance to oppression," an action aimed against a bad. Only one document guarantees a generative action, aimed towards a good, exercised by the individual person, with the state's entire job described as protecting its exercise.
The founders recognized that the only thing we truly owe each other is protection against interference with each other's pursuit. Life and liberty are the prerequisites. But the pursuit of happiness is the part we all must do for ourselves.
That's what we celebrate on July 4 – the pursuit. July 4 is a celebration of the country "of Laws, and not of Men," as John Adams put it. America is at heart an idea, not a place, and the idea can't be displaced, dismissed, or diminished by anyone.
Another sort of pursuit was celebrated last weekend...
Pop star Taylor Swift tied the knot with NFL player Travis Kelce at Madison Square Garden in New York City. The wedding was witnessed by 1,000 of their closest and dearest friends and relatives. Comedian/actor Adam Sandler officiated.
No matter what you or I think of either of them, the union of two highly successful, seemingly happy young people on the same weekend we celebrated what's best about America feels right to me.
But death also made a calculated appearance...
Iranian Supreme Leader Ayatollah Ali Khamenei died a little over four months ago.
He was killed on February 28, the first day of the Iran War, in a U.S.-Israeli military strike on his compound. His funeral was delayed as the war dragged on.
I doubt it's a coincidence that the six-day funeral procession began on July 4. It could be seen as a bet that the U.S. wouldn't drop bombs on its 250th birthday. But you could also argue that Iran wanted to remind everyone that Khamenei's death came at the hands of U.S. and Israeli military forces.
On July 4, the Supreme Leader's funeral procession started its six-day trip, wending through the Iranian cities of Tehran and Qom and the Iraqi cities of Najaf and Karbala. It ended in Khamenei's hometown and Iran's holiest city, Mashhad. It was highly choreographed and attracted millions.
So last weekend, we had a birthday, a wedding, and a funeral. Sounds like a Hugh Grant movie.
All of this brings me to the reason I'm writing to you today...
These events echo what we've seen with a single, overhyped company...
SpaceX (SPCX) was born as a public company on June 12. The company's brand-new, publicly traded shares created a $1.75 trillion market cap. It was the biggest initial public offering ("IPO") in history, making Elon Musk the world's first trillionaire.
The stock rose more than 40% in its first two trading sessions, with its market cap briefly exceeding $2.6 trillion. SpaceX fell on the fourth day of trading and has trended sideways at a $2 trillion market cap the past several trading sessions. That's a price-to-sales ratio of more than 100. No business is worth that much, let alone one that doesn't make a profit.
Then there's the funeral...
With the SpaceX IPO, the bell tolled for rules restricting unprofitable companies with tiny public floats (or available shares), like SpaceX, from making it into big, widely held indexes.
The Nasdaq changed its rules to reduce the waiting time for mega-cap stocks to enter its indexes from three months to 15 days. The move was obviously to enable SpaceX's rapid entry into the Nasdaq 100 Index, which occurred on Tuesday.
Index provider FTSE Russell relaxed its float requirements, and MSCI fast-tracked mega-cap companies for its indexes. So SpaceX is now in the Russell 1000 and 3000 indexes, as well as the MSCI standard and large-cap indexes.
The S&P Dow Jones Indices was the sole holdout – refusing to relax the profitability and seasoning requirements for its indexes (in which a company must trade publicly for 12 months).
The death of the old index rules means everybody who owns those funds in their 401(k) is now married to SpaceX, for richer or poorer, for better or worse, till death or bankruptcy do they part.
That's because passive funds have no choice but to buy the stock. As soon as the stock was added to those indexes, it triggered billions in automatic buying... which will continue every two weeks when Americans get paid.
Maybe having a tiny position in SpaceX in your 401(k) doesn't bother you...
After all, the whole point of an index is that you don't have to worry about the risk in a single stock.
If that's your view, you're not wrong – yet.
Remember, Nasdaq, FTSE Russell, and MSCI didn't just make a one-time allowance for SpaceX, even though that was the obvious, near-term purpose for the rule changes. They changed their rules for everyone.
It's like when the government made it easier for lower-income folks to borrow money to buy a home by passing various laws during the 1990s. It looked like a wonderful, generous, compassionate idea right up until subprime mortgage loans started blowing up in 2008, leading to a financial cascade that eventually threatened to destroy the global financial system.
Right now, it seems fine. SpaceX's float isn't big enough to garner it a large weighting in any index. So it's unlikely to sabotage your returns noticeably – for now.
But how will it look in 10 years, after perhaps a dozen or more SpaceX-like, unprofitable monstrosities make their way into your 401(k)? How will it look when SpaceX insiders have sold most of their shares, and the stock's much-larger float and gigantic market cap turn it into one of your largest holdings?
The new rules virtually guarantee a trend toward lower-quality, large-index components, which guarantees a decline in overall index quality.
We should all remember 2026 as the year big indexes went from gatekeepers to subprime-equity pushers...
Even though the largest stocks have mostly underperformed the S&P 500 Index this year, index buyers and 401(k) holders are still putting nearly 40% of every dollar they invest into the top 10 stocks.
Right now, the largest names are some of the greatest, most cash-gushing businesses in history... including Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOGL), Meta Platforms (META), and Amazon (AMZN). Those are high-quality names. They've done investors proud over the past couple of decades.
But think about the indexes' tendency to concentrate your assets in a few mega-cap names. Don't you want the rules to be geared toward keeping lower-quality – i.e., unprofitable – mega-cap companies out?
Like the Declaration of Independence, the old index rules didn't guarantee you a good result. But those rules protected the pursuit of that result by preventing your capital from going into substandard mega-cap names like SpaceX. Now, those rules are gone.
It's incredible to step back and realize that the 401(k) turned the stock market into a retirement utility – which was not its intended purpose. The government has interfered way too much in the stock market, and our lives generally. But you and I don't make the rules. We just have to live by them. And I must admit, they've worked well for a lot of folks.
After all, stocks tend to go up over the long term and, as our president likes to remind us, folks' retirement accounts are as valuable today as they've ever been.
But the government has incentivized millions of Americans to put their fate in the hands of the stock market, only for indexes to pull the minimum quality tests of the largest components out from under investors' preferred investment vehicle.
Between the government's interference and Wall Street's desire not to miss out on hot, mega-cap stocks like SpaceX, it sure looks like the wind that has been at investors' backs for a few decades is starting to change direction.
One day, when the S&P 500 has finally caved to the new reality and is stuffed with a dozen SpaceX-like names that account for 40% of its value, investors are going to feel like they walked straight into a hurricane.
Perhaps that's why some folks are starting to 'rotate'...
As Nick Koziol wrote on Wednesday, "S&P 493" stocks are becoming more attractive to investors:
With some Mag Seven stocks' rises offsetting others' declines, they contributed a few points to the S&P 500's overall jump this year. But it wasn't much.
Overall, the other 493 stocks made up 96% of the index's year-to-date return. That compares with 45% in 2024 and 54% last year.
As investors wait for a return on the hundreds of billions of dollars in AI investments, it's clear that the Mag Seven's luster is wearing off. Folks are rotating their money into other investments.
It would be ideal if the AI boom merely ended with "the Mag Seven's luster" wearing off and investors rotating into more attractive stocks.
As the Mag Seven underperform, their weight in the index will decrease relative to the remaining 493, and index buyers will naturally put larger stakes into those stocks. The Mag Seven's underperformance isn't merely tolerable. It's good for everybody.
As we've pointed out before, you can amplify the weight of the 493 and reduce your exposure to the top mega-cap names by using an equally weighted index fund instead of a market-cap-weighted index fund.
For example, instead of using the popular State Street SPDR S&P 500 Fund (SPY), you could switch to the Invesco S&P 500 Equal Weight Fund (RSP).
It's okay to have a long-term relationship with your stocks if you're picking individual names. But you always need to be ready to sell them in case the fundamentals of the business deteriorate.
New 52-week highs (as of 7/9/26): Arista Networks (ANET), Alpha Architect 1-3 Month Box Fund (BOXX), Chemed (CHE), Canadian National Railway (CNI), Exelixis (EXEL), GCM Grosvenor (GCMG), ChipMOS Technologies (IMOS), Lamar Advertising (LAMR), Marathon Petroleum (MPC), Match Group (MTCH), Cloudflare (NET), Okta (OKTA), Roivant Sciences (ROIV), UnitedHealth (UNH), and Union Pacific (UNP).
In today's mailbag, another thought about the AI boom, which we discussed (again) yesterday... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"AI is going to crash and burn if we don't build more nuclear power plants or natural gas electricity plants. It's interesting how nobody is talking about how outdated our energy grid is..." – Subscriber Arlene C.
Corey McLaughlin comment: You're right that you don't hear the tech and AI companies talking up the power needs in all their public announcements about their AI spending plans.
But don't include us in the "nobody" talking about an outdated energy grid. We've been writing about the need for upgrades and growing energy demand for years – even before the AI boom – and even more so now with data-center builds ramping up.
A couple years ago, on an episode of the Stansberry Investor Hour, Dan and I spoke with investor David Tice, who produced an award-winning film starring Dennis Quaid called Grid Down, Power Up. We talked about the stressed (and vulnerable) power grid, and risks to millions of Americans because of it, in detail. You can listen to or watch that here.
We could also point to a lot of other pieces of research, like this recent Masters Series essay from our friend Joel Litman, talking specifically about how data centers and the "supply-chain supercycle" are driving more demand for energy.
And our May 13 Digest also comes to mind with some good information. It was a conversation between our Director of Research, Matt Weinschenk, and senior analyst Gabe Marshank on why natural gas is a big answer here. As Gabe said...
Natural gas is the critical swing fuel in the U.S. energy stack... At the baseload, you have the stuff that runs all the time. That's nuclear, hydro, a lot of the old coal facilities. Then you have solar and wind, which are fine when the sun is shining and the wind is blowing, but you can't predict when they run.
You need something that can act as a swing producer, and that's natural gas. It's very efficient, it's much cleaner than coal, and it's a lot easier to put up... Liquefied natural gas ("LNG") is a technology that has been around for a long time but is kind of getting going in real time. I see LNG capacity following the same path that we saw with U.S. onshore drilling. And you've now got a second demand driver, which is the LNG export market...
New nuclear is the only real alternative, and that's basically a generational project...
From an investing standpoint, in the nearer term, the thing is that natural gas prices are still near historic lows relative to oil, and because of the demand for LNG, Gabe's betting on the price rising in the years ahead. He shared one company he likes as a bet on it.
Read more here, and stay tuned to the Digest and our paid publications for more of our team's analyses and recommendations in the energy space.
Good investing,
Dan Ferris
Medford, Oregon
July 10, 2026
