Last week, the market saw a selloff in computer chip makers, with the S&P 500 falling 2.6%. The jobs report showed a strong labor market, with March and April figures being revised higher, and the May report crushing expectations with 172,000 new jobs added. With inflation remaining higher than the Federal Reserve’s goal of a long-term 2% average, the market is also pricing in the strong potential of an interest rate increase. Long-term bond prices fell, driving up bond yields.
This week SpaceX will have its Initial Public Offering, when a privately-owned company lists its stock on the exchange and is available to the public. Anytime there is a big, splashy IPO like this, many people want to purchase stock at the IPO. That stock is generally only available to clients of the investment bank or banks that sponsor the IPO, and large institutional investors.
Currently, the S&P 500, a common stock market index, has stated it will not change its rules to allow SpaceX into the index sooner than normal. Currently, a company must be 12 months past its IPO and be profitable for the four previous quarters combined. The company would also need a market capitalization of at least $22.7 billion. Market capitalization is determined by taking the total number of shares available of the company and multiplying it by the current stock price. SpaceX is expected to have a market capitalization of $1.8 trillion.
The NASDAQ 100, however, has already changed its rules. SpaceX will most likely join that index just 15 days after its IPO. Passive funds that track this index will be forced to purchase large amounts of SpaceX to match the index. These funds are market-cap weighted. The NASDAQ 100 doesn’t take the 100 companies on its list and average their share price, owning equal amounts of each company. The index is based on each company’s market capitalization, with larger companies making up a larger share of the index.
Many mutual funds and active managers will wait for the stock to settle down a bit before adding it to their portfolios. SpaceX is a large company known for its rockets and StarLink satellites. Much of its expected growth is from their plan to put data centers in space, which could lead to a bumpy ride for investors as the technology is developed.
If you’re worried about missing out, don’t be. If your money is professionally managed, you will most likely have some in your portfolio within the next year. If you really want the upcoming roller coaster, consider an index fund that will include the stock later this month.
Your action item this week is to pull your credit report from annualcreditreport.com. Look for late payments or unfamiliar accounts.
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