(June 18): SpaceX shares declined for the first time on Wednesday since its record initial public offering (IPO), snapping a three-day rally that had reached nearly 50%.
Shares of Elon Musk’s rocket and AI firm fell about 5% after a volatile session that saw the stock initially gain as much as 6% before reversing. The decline dragged SpaceX back below Amazon.com Inc in value, making it the sixth-largest company in the world with a market capitalisation of about US$2.5 trillion ($3.2 trillion). Still, the shares are more than 42% above their US$135 IPO price.
“Long story short, I think this is just noise so far. If we were to see a big down day, I think that’d be a different discussion,” said Michael Monaghan, a partner and portfolio manager of Founder Funds in Dallas, which holds shares of SpaceX. “If it really got hit more, we would probably add,” he said.
Some of the volatile intraday trading seen in shares of SpaceX can be attributed to low float, which might also be giving its stock price a boost. There is a relatively small portion of SpaceX shares available to trade, with only about 4.2% of total stock available on day one. As lock-ups keeping insiders from selling expire in the coming months, it could add downside pressure to shares.
The slip came during a broader sell-off across US equities as investors digested the US Federal Reserve’s (Fed) decision to leave interest rates unchanged and new projections that indicated officials are split over whether they expect to hike rates this year. After the announcement, which marked the first decision under new chairman Kevin Warsh, traders fully priced in a Fed rate hike by October. The S&P 500 Index fell 1.2%, while the tech-heavy Nasdaq 100 shed 1%.
See also: SpaceX set to overtake Amazon in value as it soars for third day
Before Wednesday’s decline, SpaceX had been the most-bought stock by retail investors each day since its IPO, matching the combined buying of Nvidia Corp, Alphabet Inc, Amazon, Meta Platforms Inc, and top exchange traded funds tracking the Nasdaq 100 and S&P 500 indices, according to data from Vanda Research. Over the same period, Tesla Inc saw roughly US$61 million in net selling, the data showed.
“Perhaps we are seeing a rotation from one Elon-linked trade into another, with SpaceX increasingly viewed as the cleaner AI & tech exposure,” Vanda wrote in a note.
If SpaceX’s gain from its IPO price holds through its first five trading days, it will have easily beat both the median and average one-week returns of 30 major US tech IPOs in the past 15 years, according to Truist Advisory Services. The data also showed that while 57% of those IPOs produced positive returns after one week, one month and three months relative to their first-day close, only 43% were positive over longer six and 12 months periods.
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Investor Michael Burry, made famous by The Big Short, wrote in a Tuesday Substack post that so far, put options on SpaceX — a bearish bet — are too expensive, so he hasn’t bought any at the moment.
A ratio of puts to calls in SpaceX was nearly equal on Wednesday, in a sign that more investors were hedging against a drop in the company than on Tuesday, when options first began trading. More than 1.4 million SpaceX contracts changed hands on Wednesday, 24% lower than Tuesday, making the company the third-most traded security in the US options market behind Tesla and Nvidia.
There is also the possibility for index inclusion in the coming weeks. Nasdaq Inc changed its rules to allow faster entry to shares of huge companies like SpaceX, which would force funds that track indices such as the Nasdaq 100 to buy the stock. SpaceX will become eligible for inclusion in that index after 15 days of trading.
S&P Dow Jones Indices decided not to change its rules to allow new IPOs faster entry, meaning SpaceX would not be immediately included in the S&P 500. That means SpaceX will have to wait at least 12 months, and meet existing profitability and public-flat requirements based on its size before being added to the key market gauge.
Forced buying would support the stock price. In the interim, however, some investors may be content to stay on the sidelines of SpaceX knowing that they will hold a passive investment in shares once it is added to indices.
“It could play into the fact that some investors are saying, well, I am not going to panic because if you are able to then go ahead and just track that index with an investable instrument, you are getting exposure,” said Shelby McFaddin, a portfolio manager with Motley Fool Asset Management.
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