SpaceX Is Headed for Your Retirement Account
The Weekend Edition is pulled from the daily Stansberry Digest.
The rules are changing for SpaceX...
Since Elon Musk's SpaceX – the rocket, satellite, Internet, social media, AI, and defense company – filed for its initial public offering ("IPO") in May, the buzz around it has been growing.
The IPO will be one of the most "accessible" for individual investors ever. As we wrote in the April 2 Digest...
According to CNBC, SpaceX may allocate 30% of shares from its IPO to everyday retail investors, instead of the typical range of 5% to 10%. That's a red flag.
We called this a "red flag" because it means SpaceX is leaning on the least informed investors. They'll buy the shares that early investors are eager to sell... at a nearly $2 trillion valuation to boot.
SpaceX has lost $37 billion since it was founded almost 25 years ago. It's seeking to raise $75 billion through the IPO. As we wrote in a recent Digest...
SpaceX may change the world and bring people to the moon or Mars. It may even be worth investing in down the road. But ask yourself: Is this a company you want to spend new money on as it seeks public capital right now?
If you're like us, you're not planning to buy SpaceX shares in the IPO.
But odds are, you'll end up owning SpaceX anyway... if you own any index funds. And even if you don't, you'll have indirect exposure because of all the other people who do. Their behavior will move the entire stock market.
These Major Indexes Are Rewriting Their Rules
The companies behind some of the major U.S. stock indexes are changing their rules to let SpaceX join their ranks sooner than usual...
The Nasdaq has changed its rules to allow SpaceX to be included in its indexes after only 15 trading days, if the company ranks among the top 40 by market cap in the Nasdaq 100 Index. That's down from the former span of three to 12 months.
And in late May, FTSE Russell – the company behind several other indexes – eased its own rules to allow companies to be included in an index after only five days of public trading.
However, there's one major index that won't be fast-tracking SpaceX... Although S&P had initially proposed a new rule that would allow "megacap" stocks to join the S&P 500 faster, it announced this week that its requirements would remain unchanged.
These rules are in place to protect investors. The first few weeks and months after a company goes public are usually volatile.
For a company as hyped as SpaceX, we expect a huge pop in the first few days as the retail crowd piles in. But we could also see a huge wave of selling as insiders lock in their gains from when the company was private.
Bloomberg reports that 44% of SpaceX's "early release" shares will be eligible to be "unlocked" just 90 days after the IPO, and 100% will be eligible within six months of the IPO.
In the meantime, early inclusion for SpaceX could make for more volatility in the broader indexes... which brings us to the IPO's other effect on the market.
Your 401(k) Contributions Might Prop Up SpaceX
Index inclusion means passive funds have to get ready to buy...
If SpaceX does join some of the major indexes soon after going public, the passive funds that track them will have to load up on SpaceX shares to match their benchmarks.
That means exchange-traded funds ("ETFs") and 401(k)s would buy SpaceX stock weeks after the IPO. And that'll fuel the "relentless bid" for both the broader market and SpaceX shares...
By that, I mean the constant flow of money from folks contributing to their retirement accounts. Every pay period, a small percentage of millions of Americans' paychecks flows into their retirement accounts – where a large portion goes to funds tracking U.S. equity benchmarks.
As our colleague Bryan Beach explained on a recent episode of the Stansberry Investor Hour podcast, passive investing and the relentless bid have "permanently changed the way the market is valued."
With the indexes' severe concentration in the largest stocks in the market, a lot of folks' retirement funds are being allocated to the biggest stocks in the U.S., like the Magnificent Seven. Bryan uses Apple (AAPL) as an example...
There's something like 90 million investors investing in 401(k)s. On average, they're probably putting $10 or $12 per pay period into Apple. Just Apple.
If we assume an average pay period of two weeks, that's $900 million in demand for Apple shares hitting the market twice a month. That's more than enough to prop up shares – even if the company's news or financials aren't quite showing as bullish a picture.
And now, this "bid" will be backed by forced IPO buyers...
As Bloomberg senior ETF analyst Eric Balchunas shared on social platform X last week, funds that track Russell and Nasdaq indexes (the ones allowing SpaceX into their indexes within weeks of an IPO) would have to buy about 5.5% of available SpaceX shares right out of the gate.
And according to Goldman Sachs, passive funds are already preparing to trim some of their largest positions... to raise cash for their SpaceX purchases.
In short, the "relentless bid" will prop up SpaceX through continued demand for shares, even if its valuation is detached from the company's fundamentals. And this will likely be a tailwind that pushes the broader indexes even higher.
Anyone with exposure to an index fund – which is just about everybody, even if indirectly – won't be able to escape the reality. But you can know what's coming, avoid the pitfalls, and look for other opportunities in individual stocks and sectors.
Rather than follow the crowd, we suggest doing your own thing...
In the "space race" – which is at the heart of Musk's ambitions for SpaceX – other companies are much better positioned to deliver long-term returns for shareholders.
That's according to Stansberry Venture Technology editor Dave Lashmet, who has spent years looking for these opportunities...
Dave has recommended three stocks that went on to gain 1,000% or more. He even recommended buying Nvidia (NVDA) back in May 2016, when it was known more for video-game chips than AI, and shares were trading at a split-adjusted $11 per share.
Dave also identified the companies behind today's world-changing weight-loss drugs years before most caught on.
He has given his subscribers nearly 50 different chances to double, triple, or even make 10 times their money over the years. And he recently went live to reveal a "make or break" twist to the SpaceX IPO.
In this free presentation, Dave discusses a company with technology 10 times better than SpaceX's... It's a business linked to a Pentagon project that could deliver massive profits, whether Musk's plans for SpaceX work out or not.
All the best,
Corey McLaughlin and Nick Koziol
Editor's note: Investors are calling SpaceX the "mother of all IPOs." But according to Dave Lashmet, on June 15, we could see a big twist to the SpaceX story that could make or break Elon Musk's grand plans. And if you know what's coming, you could see a massive windfall... no matter what SpaceX shares do in the days ahead.