Is SpaceX Going to Crash the Market?

I am conflicted about the current state of the stock market.

On the one hand, “the stock market always goes up” is a valid argument. Even if the indexes drop (20%!), they return to all-time highs within months.

We’ve seen this time and again. The stock market drops 8%, 10%, 20% from its all-time highs… and then comes roaring back.

There’s just so much money in the world. And fear disappears so quickly. Pandemic? Drop and then rise quickly. Huge tariffs imposed? Drop and then rise again. War breaks out with a big country like Iran? Drop and then rise again. Inflation comes in higher than expected, and the Fed doesn’t drop interest rates? Drop and then rise again. See the pattern?

What would it take for the stock market to really go down for years? I can’t really imagine it right now.

So the best approach is just to always be nearly fully invested in the stock market. Right?

OK, well, a few companies are about to test that theory.

Hello, SpaceX. Hello, OpenAI. Hello, Anthropic.

OK, so imagine a scenario where a private company has a massive valuation. Say, $1.75 trillion market cap. Then it wants to IPO with a small percentage of its shares. Say, 5% of its shares will be sold on the open market.

So far, you have that idea in your head, right?

And let’s say the company is losing money. And let’s say the CEO/Founder has a type of control that he can never be fired for any reason. And let’s say that the company is valued at 100x revenue where other companies are valued at around 10x revenue.

OK, we’re starting to think this is weird, right?

And what if the stock market indexes (Nasdaq 100 and S&P 500) suddenly change their listing rules to “fast track” a company into their index, and remove the need for profits?

Suddenly, you see the problem, right?

You have a company that has a chance of failing entirely as a business. A chance of going to $0. A chance of falling in valuation. And a good percentage of MY money will be forced to buy that company.

OK, maybe only 2% of my portfolio is invested in the Nasdaq directly or indirectly, and SpaceX might become 3% of that…

But something like 23% of my portfolio is invested in the S&P 500. That 3% is more significant. You could say that 1% of my assets are going to support a company I don’t think makes good business decisions and whose stock I expect to fall.

I guess I could hedge that somehow. Sell SpaceX short for 1% of my portfolio value?

I think the bigger problem could be that this is the straw that breaks the camel’s back. Or OpenAI with its trillion-dollar valuation. Or Anthropic with its trillion-dollar valuation.

One of the signs of the party being over (say, the Dot Com Boom party), was when companies became desperate to IPO. Investors suddenly wanted the cash.

Why is that? Why do all these billionaire VCs and companies like Microsoft, Amazon, Nvidia, and Google want the cash?

Makes me a little scared, to be honest.