🌅 The SpaceX Sell-Off Could Get Worse

SOURCE

Bloomberg

WHAT TO KNOW

• SpaceX shares plunged 16% on Monday, capping off a three-day losing streak and wiping out $400 billion in market value in the second-largest single-day loss in stock market history (Nvidia’s $590 billion sell-off in January last year was the largest ever). The stock has been on a steady decline since its record-breaking debut on June 12, briefly falling below its initial $150 price on Tuesday (it closed at $154 on Wednesday). The decline comes amid a broader tech sell-off this week, as analysts fear the Iran war will push inflation higher and lead to a rise in interest rates over the coming months.

WHY IT MATTERS

• One saving grace for SpaceX will come in early July, when its shares will officially join the Nasdaq 100 index after less than a month of trading (Nasdaq changed its rules to “fast track” SpaceX shares ahead of the typical year-long waiting period for most stocks). The moment that happens, some $8 billion worth of SpaceX shares will automatically be purchased by passive investors who own funds that track the Nasdaq 100—including funds in many 401(k) and workplace retirement plans—temporarily increasing demand for the stock. However, analysts say the real test will come over the next few months, as insiders’ lockup periods end and thousands of investors will be faced with either holding what most analysts say is an overvalued stock or selling shares to reap massive gains (thereby pushing down the price).

CONNECT THE DOTS

• Throughout most of the modern stock market’s history, initial public offerings (IPO) served as a chance for young companies to raise cash and subsequently create value for public investors. However, research shows that’s no longer the case, as IPOs today more often serve as insiders’ exit liquidity rather than public investors’ growth opportunity.