SpaceX’s blockbuster stock-market debut on Friday showed that investors still have an appetite for moonshots. But this week, the Federal Reserve could bring highflying parts of Wall Street back down to earth.
Few initial public offerings arrived with as much hype as SpaceX’s. The rocket maker symbolizes the enduring zeal among investors for futuristic growth stories, drawing demand from Wall Street pros, individual traders and index funds even before its first trade. The company’s shares closed 19% higher in their debut Friday, after the IPO priced at $135. SpaceX is now the sixth-most valuable company on Earth, even though it’sstill burning through cash.
For investors, the historic $75 billion offering shows that appetite for big, speculative growth stories remains strong. But it also comes at a delicate moment: Stocks are richly valued, inflation has been drifting high above the Fed’s 2% annual target, and the artificial-intelligence buildout driving much of the market’s gains is becoming increasingly capital intensive.
And any missteps by Kevin Warsh, the new Fed chair, at his first meeting in charge of the U.S. central bank this week could quickly test the risk appetite SpaceX helped showcase, according to analysts.
The focus is quickly shifting back from the SpaceX IPO and toward inflation, the Fed’s response and the Iran conflict, said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company, in a phone interview.
“SpaceX is a small part of the market’s story, which is still tied to inflation and what the Fed will do about it,” Schutte said. “The economic picture still dominates the market.”
That matters because the market’s biggest growth stories are becoming more sensitive to the cost of capital, Schutte noted. Earlier in the AI boom, much of the buildout was funded by the operating cash flow of large technology companies. But as spending needs have grown, many companies have increasingly turned to debt and equity markets to fund their expansion.
Higher rates could make that shift more painful. Companies would face more expensive financing costs, while analysts would have to discount future earnings at elevated rates, making those earnings less valuable today, Schutte said.
U.S. stocks ended the week higher, despite a pullback in certain highflying areas of tech after a blistering rally. The Dow Jones Industrial Average gained 0.7% for the week, the S&P 500 rose 0.7% and the Nasdaq Composite gained 0.7%.
SpaceX and volatility
Even if concerns around the Fed quicky retake center stage this week, SpaceX could still have a market impact of its own.
Its shares could see more volatility in the weeks ahead and may add to broader market swings, according to Rob Haworth, senior investment-strategy director at U.S. Bank Asset Management Group.
A potential source of volatility would be index demand. If SpaceX is added to several major benchmarks, funds that track those indexes may need to buy the stock to mirror their holdings. A rebalancing and recent tweaks to Russell indexes could soon bring a wave of index-related buying. Nasdaq, meanwhile, has approved a “fast entry” rule for megacap companies,potentially allowing SpaceX to jointhe Nasdaq-100 as soon as 15 trading days after its debut.
That could add to the stock’s first-day pop, though some investors might take profits as more shares get unlocked and become available, Haworth said. The test will be whether demand from retail investors, institutions and index funds is strong enough to absorb the supply, he added.
Representatives for SpaceX did not respond to a request seeking comment.
SpaceX’s IPO, along with other high-profile public listings expected later this year from OpenAI and Anthropic, could reshape where investors put their money, according to Schutte. If investors want to buy into newly public growth companies, they might have to sell some existing holdings to make room, he said.
In turn, investors may find a new “Magnificent Seven”-esque group of favored stocks, Schutte noted.
Fed rate-hike risks
The next Fed policy decision is due on Wednesday. It will be the first time the public hears from Warsh in his new role as the central bank’s chair.
Investors are widely expecting the Fed to leave interest rates unchanged. The bigger question is whether officials will signal that rate increases are possible this year should inflation prove more persistent than expected.
Schutte said he doesn’t expect the Fed to raise rates before the U.S. midterm elections in November. But if inflation remains elevated afterward, policymakers could be forced to consider a rate hike, he added.
Meanwhile, the $30 trillion Treasury market has already repriced since the Iran war beganmore than 100 days ago, reflecting a backdrop where rate increases look more likely.
That puts extra attention on the Fed’s policy statement, any dissents and Warsh’s first press conference as chair, according to Gregory Daco, chief economist at EY-Parthenon.
Daco expects the Fed’s guidance to become more two-sided, with officials acknowledging that rate hikes could be on the table if inflation remains too persistent. That would mark a shift from language investors had viewed as relatively “dovish,” or accommodative, he said.
Warsh’s approach to communication also will be closely watched. Because he has previously been skeptical of forward guidance and has questioned the usefulness of Fed forecasts, Daco said the central bank could remove or soften language in its policy statement about future rate adjustments — leaving officials with more flexibility as they assess inflation and the economic impacts of the Middle East conflict.
Daco said he doesn’t think the Fed will scrap its Summary of Economic Projections or its “dot plot” forecasting the possible path of interest rates. However, he added, it wouldn’t be surprising if Warsh withheld his own dot-plot projection given his past skepticism toward the Fed’s forecasting tools.
