Big relief for me. As a passive investor, I want the indices to follow the same passive strategy they always have, and specifically not make exceptions for specific companies like SpaceX wanted.<p>Plenty of ways to get exposure to that stock without it going into the indices it is not qualified for.
This thread should be marked as dupe. But ChrisArchitect seems very picky...<p>Previously: "SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P" - <a href="https://news.ycombinator.com/item?id=48405718">https://news.ycombinator.com/item?id=48405718</a>
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> <i>This news tanked 5% off the Nasdaq yesterday</i><p>No, it did not. The market moved in reaction to earnings misses from <i>e.g.</i> Broadcom [1] and the strong jobs report.<p>[1] <a href="https://finance.yahoo.com/markets/article/broadcom-stock-sinks-12-as-ai-chip-forecast-disappoints-165602082.html" rel="nofollow">https://finance.yahoo.com/markets/article/broadcom-stock-sin...</a>
and Meta saying they want to issue. Combined with the IPO scramble there's a lot of dilution and raising hitting the same sector in a very short period of time. Can the public markets pony up the cash in the short timeframe? It seems investors said no, or at least the uncertainty was high enough that they trimmed the risk.
> <i>Can the public markets pony up the cash in the short timeframe?</i><p>Yes, very easily, American households alone plop a few hundred billion to over a trillion dollars into the stock market every quarter. Whether investors <i>want</i> to is another question. (The answer, at least to the tune of $75bn for SpaceX, seems to be yes.)
What I mean is that investors don't want to pony up the cash at current market prices. They want a discount. Then they will pony up the cash<p>Just like creditors demand higher rates on investment grade bonds, investors are demanding a higher risk premium if they're going to be expected to keep piling in cash to this particular sector that's diluting and raising.
I thought most of those households was massively in debt?
The market moved in reaction to the totality of events that happened in the world all averaged out through the actions of the participants, anyone who says "this" was what happened on any day is wrong. Some days have dominating factors but even if the event is the dominant one, the reason why it has the impact it does might be a 3rd or 4th level effect.
> <i>anyone who says "this" was what happened on any day is wrong</i><p>There is never a singular reason. But there <i>are</i> negligible reasons. S&P not changing its rules was a negligible reason for today's tanking.
But how can you quantify that? There is no way to prove it, the market cannot say "I wasn't moved by this, I was actually moved by that and this part was actually just negligible."<p>Isn't it all subjective in the end because nobody really makes their trades with verifiable notes expressing the exact reason. So we can only guess right?
> <i>how can you quantify that?</i><p>Precedent and timing. Rates-related news is always going to massively shift the market, and the market shifting right after the jobs report is a pretty clear signal.<p>Moreover, S&P holding course wasn't new information–there was zero evidence of anyone pre-trading a rebalancing, which means the market didn't expect S&P to materially change its rules.
Thank you! So sick of people always ascribing the market's movement to whichever narrative headline they pick that day.
The strong job numbers too.<p>On a side note, I find it very sad that strong job numbers make stock plummet.<p>It really is an indication that the stock market is mostly speculative and not concerned about the actual economy.
> <i>It really is an indication that the stock market is mostly speculative and not concerned about the actual economy</i><p>Not really. Strong jobs numbers in the midst of 3+ percent inflation means rates should go up. That, in turn, dilates time on future earnings. So making a company's future earnings more-heavily discounted will be a net drag on valuations even if the jobs numbers indicate those numbers, near term and far, will be higher.
Yep. Job numbers <i>are</i> the “actual economy” – the actual economy is driven by wages and consumption.<p>Stronger wages → stronger consumption → higher demand-pull inflation.<p>But higher inflation implying that “rates should go up” is central bank doctrine. It’s <i>not</i> a general law of how economies function.<p>Central banks intervening with interest rate adjustments is what distorts the prices of equities downward, when inflation rises.<p>Without central bank intervention, inflation should theoretically push equities higher (a highly-inflated economy driven by rising demand is by definition a well-performing economy!).<p>Central banks intervene because runaway inflation can be harmful to wage-earners (they save in dollars, not assets).<p>But I’m not sure if a 2–3% inflation target is ideal. It seems to me that this arbitrarily low inflation target restricts the growth of the economy in ways that might affect wage-earners, defeating the stated purpose of monetary policy, since higher rates also have the effect of curbing job growth as well as raising the cost of servicing mortgages.
Agreed about the 2-3% target. Seems like a crazy low target for a country that has been, historically, a strong exporter. Or at least seems to want to be an exporter. I wonder if one of the reasons behind this low target rate is that inflation will ultimately decide how expensive government debt is, since under normal circumstances people will want their bonds to at least pay out enough to cover inflation.
> But higher inflation implying that “rates should go up” is central bank doctrine. It’s not a general law of how economies function.<p>Let's put it this way then: the central bank can raise rates or it can crash the economy into a brick wall. In that sense, rates <i>should</i> be raised. We have the least competent regime in history right now though, so they might choose the latter option.
> <i>higher inflation implying that “rates should go up” is central bank doctrine</i><p>Uh, no. If you have no central bank, more consumption and more employment means more demand for money. <i>Ceteris paribus</i>, that will raise rates. (Our own history with free banking is more complicated since the only inflationary period was driven by specie introduction from California's gold rush. The predominant problem in antebellum America was deflation and bank collapses.)<p>You're correct inasmuch as central banks quicken this reaction, and–when done properly–dampen it. But the fundamental engine is emergent, at least for nominal rates.
> not concerned about the actual economy.<p>Why would it be? Non dividend stocks only have value because other people think they have value (i.e. greater fool theory).<p>Only dividend stocks have some base value connected to how well the company does. (Higher dividend if it does well, lower if it does poorly.) But they still also have a lot of "greater fool" value.<p>Beyond dividend, stocks have no intrinsic value. Nowadays you don't even get a piece of paper to wipe your ass with anymore, it's all digital.
> Only dividend stocks have some base value connected to how well the company does.<p>That's not how it works. If the company has profits they can distribute it in many ways. Dividends is one, but not a great one because it forces you to pay taxes on it this year. Or they can buy back shares which increases the share price, which is better because then you don't have taxable income on that until you decide to sell. Or they can reinvest that money into the business to grow it, which is the ideal option, although not always possible.
Every time I try to explain this to people I feel like I'm talking to a brick wall. Even more frustrating to hear, otherwise reasonable, market analysts say that "dividends don't matter because the stock value goes down on payout". What doesn't matter is how successful a company is if they don't share their profits. You're literally buying a Pokémon card just with a lot of liquidity until the illusion of value bursts, hoping that somebody will buy you out because P/E improves or whatever.
They do have intrinsic value!<p>Growth stocks trade on a multiple of <i>earnings</i>: earnings have intrinsic value.
To who? There's no immediate benefit of holding a stock that doesn't pay out beyond voting rights, or a fraction of company assets. As parent said, you're just hoping to sell it to somebody down the line for more. It's speculation. The market is liquid, and a lot of people believe these stocks have value, but it's still speculation.
That's just dividend stocks with more shady. We promise to invest the dividend you would have gotten into ourselves to become more valuable bro. But that will only be reflected in "valuations" that don't directly affect your bank account. It is still the greater fool theory.<p>The worst is growth stocks that are a wrapper around actual dividend stocks. Beyond number going up, what actual concrete utility are you getting? Beyond waiting for the line to go up to eventually sell it to a greater fool, what can you _actually_ do with it? It's not real.<p>It is only real because enough people believe it is real. And they believe it because they want to believe it, because they are greedy and want easy money.<p>Once the market tanks and the greed turns into fear, there will be bagholders and the brokers will be laughing. The people who skim fees and percentages will be cozy.<p>"Now is the time to invest" they will say, because from here the line can only go up! And it will, eventually, because people want to believe, because they are greedy.<p>The only thing the stock market makes money on is greed. That is the thing that drives stock value. Not the economy.
> <i>Non dividend stocks only have value because other people think they have value (i.e. greater fool theory)</i><p>Alphabet buys back shares equal to the GDP of Uganda every year. There are more ways to return capital than through dividends.
This take makes sense but isn't really accurate. A lot of companies have stock buy back programs in lieu of dividends; essentially, using their cash flow to manipulate their stock price instead of returning money to every investor. Now this doesn't guarantee a particular price usually, but does help push the price up when they are buying a significant amount from the market.
These companies are capex heavy and need to reach into the capital markets to sustain their growth. The cost of capital is correlated with inflation. Why is this the fault of the stock market? Maybe blame the government for diluting the money supply?
That’s a lazy take. My spidey senses tell me otherwise.
-5%? Oh no panic sell everything now, its so over - Warren Buffet
I agree, but… Plenty? Really?
Just buy the stock or buy a mutual fund which invests in IT, AI, Tech what have you. Sooner or later they will probably also be included in the general index funds.
Exactly. Once they have enough float and has had enough time for actual price discovery they'll be included in index funds like any other large cap stock.
This. This a risk stance where they want to see the performance in 3-6 months. I have no doubt hundreds of funds will buy in but the major index needs to be sure it’s not going to drag down the entire stack with its inclusion.
Exactly. That's what the index funds would have had to do as well.
Yes. Plenty is correct. Fidelity let's you buy SpaceX at IPO with only $2K in the bank.<p>And there are other reasons to be cautious. Many passive funds don't license the SP500 and instead mirror it with their own synthetic index. They are not bound to respect this decision.
> the same passive strategy they always have<p>You'll be shocked to know they have changed the inclusion rules a number of times.<p>I suspect if in 12 months these megacaps are still megacaps, they will revisit the profitability rules. It's hard to have an index with 500 of the largest, most significant companies leaving out companies with trillion dollar market caps.
My personal photography blogging business has a market cap of a trillion dollars too.<p>I have 1 trillion shares, and I sold 1 to a mate for a dollar.<p>Total company revenue is like 50 bucks a month and profits are nil.<p>Can I be in the S&P 500 too?
It’s a list of the 500 largest profitable companies. Gotta make some bottom line $$$ to be included. At least that’s how it’s worked in the past.
It also used to require 15 railroads, but the market moved on. They held tight on the profitability requirement with TSLA and missed a huge part of the growth. They may continue to hold the line on that going forward. But, if the AI companies grow their market caps, it's going to be hard to point to the S&P 500 as representing the most significant companies in the US market when trillions in market cap end up no represented.<p>Of course this all becomes moot if all the companies crash out. I don't think enough people are asking what if these companies don't crash out though.
It becomes moot if even <i>some</i> of the companies crash. If you try to say it works if some of them crash because some of them didn't you actually get that XKCD "Nobody has won the US Presidential Election without..." silliness. "OK, the rule should be you have to be profitable OR have an HQ in a city with two vowels in its name".<p>Did it really used to require that you own "15 railroads" ?
The commenter is likely referring to the original S&P 90, which mandated a certain number of stocks in different sectors. At the time those numbers were 50 industrials, 20 utilities, and 15 railroads. The breakdown shifted as the economy changed until the 80's when they did away with sector quotas in favor of rules closer to today (basing allocation on market cap).<p>Regardless, the S&P 500 also excludes a company like Microstrategy (the company that holds Bitcoin) from their index, had excluded Robinhood for a wile due to missing the profit requirements, and so on. It was never "meant" to cover the 500 largest companies by market cap, and has generally resisted pressure to change that.
I get what you're saying, but I think there's a contradiction between wanting to be a passive index-fund investor and having opinions like that. The core tenet of index investing is that the market knows better than you.
Yep!! Respect to them. I was planning to move to an equal weight index but this gives me a little more time to evaluate options.
I’ve moved my S&P 500 investments to the Equal Weight index to reduce my exposure to AI. Quite aside from SpaceX, I think the large-cap tech companies are making some uncomfortably large bets on AI and any major upset could cause a domino effect.<p>But as so many ETFs have a significant stake in large-cap US tech stocks (the top 10 holdings of the iShares MSCI World ETF is entirely comprised US Big Tech, making up 20% of the value of the ETF), I found S&P 500 Equal Weight to be pretty attractive.<p>As for SpaceX itself? I feel the numbers involved all sound a bit unbelievable to me. I fear that there will be a rug-pull sometime post-IPO, and retail investors (and taxpayers, if the US Government ends up taking a stake, as they have recently indicated they might do for OpenAI) will inevitably be left holding the bag.
<i>> I found S&P 500 Equal Weight to be pretty attractive.</i><p>The rebalancing required to maintain equal weights means constantly selling your winners and buying more of your losers. That creates volatility drag. Stock returns are highly skewed: only about 4% of stocks outperform the market, and are responsible for most of its gains. By keeping your allocation to those stocks small through constant rebalancing, you are missing out on a large part of their gains. The vast majority of stocks underperform.<p>Maintaining the equal weighting also requires constant trading, which generally means higher fees. A market weighted fund, in contrast, naturally maintains its desired balance in response to price movements, without any trading.<p>Also, the equal weighting ignores the amount of outstanding float for each company. If the fact that NASDAQ has not (historically) been float-adjusted (a common anti-SpaceX talking point) gave you concern, this is even worse, due to the multiple orders of magnitude difference between the largest and smallest companies in the S&P. If enough money enters the equal-weight index, this can spark large amounts of buying in (relatively) small companies that is divorced from their economic performance.<p>The equal-weight index has outperformed the market-weighted index in some periods (not in recent memory), but with higher volatility (so worse risk-adjusted returns). That outperformance can mostly be explained by factor tilts implicit in the equal weighting (e.g., a higher allocation to mid-cap value stocks).<p>You would probably be better off with a mix of market-weighted funds explicitly designed to give you the factor tilts and risk exposure you want.
Exactly, I share the sentiment of not wanting to be overly exposed to mag7, but equal weight S&P 500 is not the answer.<p>The fully passive era will probably be over soon if it isn’t already, and there’s going to be an extended period of underperformance for people who just buy FTSE all world and call it a day
If big tech ends up seeing a 40-50% draw down in the next 2-3 years, what ETF is best equipped to limit the blast radius?
I think there are no safe harbor investments at this time. Even gold is unpredictable.<p>Personally I went 80% world excl US and 20% equal weight S&P500 to hedge against what I think is an AI bubble. But if the market decides to adjust Nvidia's valuation 20% downward next week, I expect there to be ripple effects throughout the economy.<p>(Like the .com bubble, I think the tech is genuinely transformative and here to stay, but the valuations are just ridiculous.)
Selling winners and buying losers sounds an awful lot like "buy low, sell high".
I think you're missing the feature of equal-weight index that your parent comment is attracted to—which is a sense that the market generally is out of balance toward AI investment at the moment and that there's a correction coming, which the equal-weight index will have less exposure to.<p>Your concerns sound valid provided things continue on as they have (I'm not a financial advisor and this is not financial advice) but the commenters above you are specifically worried that it's not going to do that. In which case, the disadvantages you point out of the equal-weight index will be handily outweighed. If an AI bubble popping causes the market-weighted funds to suffer, it doesn't matter that we've avoided trading fees along the way.
I've been doing research on this subject for an article I'm writing, and the only way things end well if the government gets involved is if we pass legislation deprivatizing AI data centers. Like the dark fiber laid during the dotcom, the compute is the valuable thing here that will remain after the speculative bubble has burst. The deal isn't bad for the AI companies, they can depreciate on a short schedule while still getting a payout for the capex, and being able to offer tech companies compute subsidies puts the people in a stronger position than if we're subsidizing them directly.
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People are doing so because the math is not mathing.<p>Assuming that all the claims are true, this would lead to a collapse under its own weight, because at that point, supposedly, most people won't be needed in the jobs they currently occupy.<p>Assuming the claims aren't true, there will be a reckoning where all the glitter thrown will hit the ground and people that invested would like to have their marbles back at whatever the cost.<p>I'd be betting on the latter rather than the former. BECAUSE all those companies are RUSHING for an IPO because none of them want to be left with the bag.<p>Just for the sake of comparison and to put things in perspective, just for the spaceX situation, running a datacenter is no easy task and require significant maintenance and supporting infrastructure, now you're going to tell me that you can achieve the same and even more in space where virtually everything is more complicated to achieve? And you're telling me that your entire business, or at least a big majority of it, will be this entirely unproven infrastructure? Seems like a bit of a stretch to me...<p>Now this being said, somehow some things may lie in the middle, but people seem to be a bit either too fond of the claims or too aggressive towards some part of the tech stack.
Have they even talked about how they’re going to handle the heat?<p>I’m willing to believe the construction is plausible (maybe not cost-effective, but possible), and robotic operation of it is a stretch but with some optimism I could be convinced.<p>I don’t see how they can get rid of the heat, at least in a realistic way that isn’t “a square kilometer of black body radiation surfaces” or something equally “works on paper, so uneconomical it will never actually happen”.
Heat is where the math breaks down. If you examine the heat the ISS is able to deal with (about 70 KW) vs say a H200 SXM5 (700W), you can stick a grand total of 100 units there, or about 12 nodes. This isn't even accounting for supporting infrastructure, compute, etc., nor are we taking a power source into account.<p>Either there's a revolutionary heat dissipation system in the works they're keeping a secret, or my ass is getting a smoke rash.
> The greatest tech revolution by far and people on this site are trying to movie their money away from it. I hope y'all will do an honest retrospective in a year or so.<p>I see this sentiment often, and think it is short-sighted:<p>1. The tech fails at the goal - profitability is what we see for <i>any</i> tech that augments humans, which isn't anywhere close to satisfying the trillions in debt, busting the market and bleeding trillions from the economy.<p>OR<p>2. The tech succeeds at the goal - humans are mostly not needed anymore other than for menial low-paid work. Economy slows, then almost completely stops.<p>What is the outcome <i>you</i> see that keeps you optimistic? How do <i>you</i> intend to avoid the soup kitchen if this all works out? Because, you see, if this all works out you will have nothing of value to contribute too.
Neither is very likely in my opinion.<p>I think the tech will work well for some tasks where a formal feedback loop exists (such as coding). In other areas it will take many years to adapt business processes and roles to make the best use of this technology. The total productivity boost could be around 1% p.a similar to the industrial revolution of the 19th century.<p>Stock prices could be at risk not from lack of demand but because the data center buildout is bound to slow dramatically as we come up against some serious bottlenecks like energy, grid, fab capacity, permissions, etc. Not much will have to be written off, but the delays could cause big problems for debt funded projects and companies.<p>This slowdown will allow the economy and the workforce to evolve away from execution and towards planning, strategy, research and development, idea generation, experimentation, oversight as well as manually handling a million exceptions and gaps left by current AI models.<p>I don't think there has ever been a tech boom without a tech bust. But that's not the same thing as the tech not working or causing economic collapse. Maybe this time is different. Who knows.
> The tech succeeds at the goal - humans are mostly not needed anymore other than for menial low-paid work. Economy slows, then almost completely stops.<p>Economy slows or stops when AI robots are producing goods and services for much lower cost than human workers? Perhaps, but I think the obvious next development would be massive deflation: even on welfare or UBI, you would be able to afford the same quantity of goods/services than with normal wage today, because the stuff produced by robots would be significantly cheaper. Just like stuff produced in factories is much cheaper than hand-made stuff we had before factories were invented.
>> humans are mostly not needed anymore other than for menial low-paid work. Economy slows, then almost completely stops.<p>> Economy slows or stops when AI robots are producing goods and services for much lower cost than human workers?<p>You can't have an economy without employment.
Who is going to have the income to pay taxes to support that enormous welfare state that covers the needs of 99% of the population? The AI company owners? Why would they allow that? Presumably, if they own all the robots in the world, that includes the military drones.
I think there's a very small needle to thread, where the federal government can buy out the compute/data centers when the economics start to come apart, and the USA becomes for compute like China is for manufacturing. I expect anti-AI sentiment and adoption will trend better when the people feel like they're getting the lion's share of the benefit (which will happen naturally as models commoditize).<p>In the long term there will be a lot of work that AI _can_ do as well as (or better than) humans, where the human is still nominally doing the work, because of liability and verification requirements (e.g. medicine). Beyond that, I expect influencer/independent media to become the new it job.
AI can still have a massive impact while these three companies go nowhere.<p>Same as the dotcom and same as the railroads.
That doesn't necessarily make it the best investment at this point in time. Especially on a short time horizon such as "a year or so" AI stocks could easily correct 50% or so. And if you think that sounds impossible then you probably don't have much experience with the stock market.
If you’re here next year for the “honest retrospective”, it’s a deal.
Have you heard of the dot com bubble?
> <i>The greatest tech revolution by far and people on this site are trying to movie their money away from it. I hope y'all will do an honest retrospective in a year or so.</i><p>It does not <i>necessarily</i> follow that it being a technological revolution <i>also</i> means that it is a good investment—at least, perhaps, at this point in time. Railroads were a tech revolution, but a lot of them—and their investors—went bankrupt once the hype subsided and the overbuilding stopped. Once consolidation happened after their crash <i>then</i> railroads became a stable investment.<p>There are numerous examples of this in history, starting with (at least) canals; see Perez:<p>* <a href="https://en.wikipedia.org/wiki/Technological_Revolutions_and_Financial_Capital" rel="nofollow">https://en.wikipedia.org/wiki/Technological_Revolutions_and_...</a>
Yeah like Cisco in 2000
The trouble this time is if this goes bust I see a huge crash. And if it's wildly successful it seems worse.
Call me when the greatest tech revolution stops burning through billions and billions of dollars.
Large swaths of population will be left unemployed, lives ruined, with no replacement work in sight if it all pans out. So far, every company is working with massive debt, burning through money in hope that financials will start making sense sometime in the future. Adoption rate will be next to nothing if one has to pay say 3-5k a month for a normal unthrottled access. Very few will get much richer. I know I know, rich couldn't give smaller nano-fraction of a fuck about others, and in US its kind of built in the system, but most of mankind has different values.<p><i>If</i> all that works out. Most people including me so far don't see the promised revolution, productivity gains are meager since not all of us work in code sweatshops churning simple crud or similar apps out like there is no tomorrow, llm models are extremely unreliable, confidently hallucinating shit out of blue, their quality highly varies over time as compute is present or not.<p>If thats your revolution, well fuck that revolution we can do better as mankind. Its probably a <i>change</i>, but bearing hallmarks of the worst in mankind we could muster together and seems to bring the worst traits out of humans, ie greed.
> I was planning to move to an equal weight index but this gives me a little more time to evaluate options.<p>S&P requires 4 consecutive profitable quarters, amongst other requirements, so if one of the new mega caps like SpaceX or Anthropic or OpenAI get included, you’d probably want to get the benefit of their performance.<p>Put differently, if one previously specifically picked an index fund that is not equal weighted, why would you change from that strategy?
Many people already have x% of their portfolio allocated to a growth fund, that might include fast growing AI companies. You need to keep the risk profile consistent. If you change the rules you mess up people's strategy.
But they haven't been good performers, and don't deserve joining s&p, and that is the point, do not make exceptions just because Elon Musk or whatever delusional billionaire says so.
> <i>I was planning to move to an equal weight index</i><p>The only substantial effect I've seen of the influencers who were doomsplaining this decision was some minor churn in retirement assets from low-cost S&P 500 followers to higher-cost funds. (The market, broadly, never priced in a rebalancing of the S&P 500. So this was almost entirely whipped up by influencers.)<p>Broadly speaking, if you were actually considering trading on the back of S&P's decision, or worse, if you actually did, consider trimming who you follow for financial advice.
The market may not have ever priced in a rebalancing of the S&P 500, but the S&P 500 also has never allowed entry of companies that may never become profitable.
> <i>the S&P 500 also has never allowed entry of companies that may never become profitable</i><p>Yup. Which is why it was always a long shot. I personally thought they'd adopt some of the seasoning rules, but they were more conservative than even that.
> but the S&P 500 also has never allowed entry of companies that may never become profitable<p>I suspect this will be revisited if all these companies are still 1T+ market cap 12 months from now. At some point the S&P will have to say the market itself has spoken and likely capitulate.
> <i>At some point the S&P will have to say the market itself has spoken and likely capitulate</i><p>It really doesn't. The S&P 500 is an opinionated index. If you want total market, buy a total-market index.<p>My guess is S&P will stick to its guns, Anthropic will season in, and SpaceX and OpenAI (if it goes public) will stay outside for a few years.
> The market, broadly, never priced in a rebalancing of the S&P 500<p>And if you had seen it what would have that pricing looked like?
> <i>if you had seen it what would have that pricing looked like?</i><p>Look up rebalancing trades, or, less graciously, rebalancing front running. If the index is going to rebalance to include a new entrant, you'll see the other components trade down in anticipation. It's a very tight signal, and it wasn't present to any measurable degree for the S&P 500.
They weight by free float so it would been something like 0.3%. Hardly the end of the world
Why is that relevant? The rules are in place for a reason, why does it matter what the percentage is? They're not profitable. When they prove they're worth the dollars, they can be included, per the rules.<p>Also, S&P500 has a current market cap of $67 trillion, 0.3% of that is some $200billion. That is essentially a wealth transfer to the rich. They don't need it.
> why does it matter what the percentage is<p>This percentage directly determines the influence on SP500 index funds holders (SPY, VOO, etc.).<p>The outcome could have been:<p>1. not included (0%)<p>2. included, weight by free float (0.3%) --- 54th in the list between $AXP and $MCD<p>3. included, weight by free float x 3 (0.9%) --- 19th in the list between $ORCL and $JNJ<p>4. included, weight by market cap (1.75 trillion / 67 trillion = 2.6%) --- 8th in the list between $AVGO and $META<p><a href="https://www.slickcharts.com/sp500" rel="nofollow">https://www.slickcharts.com/sp500</a><p>#2 is _much_ closer to #1 than #3 (let alone #4), meaning that had an exemption been made to allow SpaceX in, given the rest of the existing rules, at least the impact to ETF holders would not be outblown. The same could not be said for NASDAQ , which was the main source of all the debate.
Yeah, the thing that really concerns me about the other indices is the minimum free float in calculations, so not only will SpaceX appear in the index way too early, they'll be artificially giving it a massive boost, meaning that passive fund investors are forced to buy even more. That is the most egregious part of all.<p>I can partly see the rationale - existing stockholders will want to ditch their stock ASAP to cash in on the artificially elevated prices, and so there's a good chance the free float will increase quicker than the index can capture it, but this rule change will be driving those sales. It's all a scam.<p>I'm glad a good chunk of my US holdings are in S&P tracked ETFs because they won't include SpaceX until it's ready, but another 25% of my funds are in funds tracking FTSE global indices (so equivalent to about another 15% in US), and I haven't yet found a good alternative to those. I might end up having to switch to separate UK, S&P 500 and global ex-US, but making that switch would probably cost me as much as just sucking it up and being forced to buy SpaceX.
> #2 is _much_ closer to #1 than #3 (let alone #4)<p>Even with linear scaling, being one third of the way between two numbers is not what I would call underlined-much closer. But zero punches above its weight here. Those extra orders of magnitude should make some impact on the scale.
> The rules are in place for a reason, why does it matter what the percentage is? They're not profitable. When they prove they're worth the dollars, they can be included, per the rules.<p>I'm sure you know this, but the rules have been changed many times over the years. Now that companies IPO much later with huge market caps, I suspect we'll see more rule changes over time. The S&P 500 is fairly conservative, so they held tight this time. If these companies are still 1T+ 12 months from now, there will be a very strong argument that the market has decided these companies are important regardless of current profitability, and the S&P will likely have to revisit.
> That is essentially a wealth transfer to the rich. They don't need it.<p>These are not valid arguments. The companies that get added to the S&P are always owned in some fraction by rich people.<p>SpaceX is obviously majorly owned by Elon, but it’s also owned by regular employees, a bunch of private investors and other funds that regular people invest in.<p>> They're not profitable.<p>Right<p>> When they prove they're worth the dollars,<p>Profitable isn’t related to “worth the dollars”. You need to look at income and how much is being reinvested into growth. Amazon famously remained unprofitable due to reinvestment and waiting for them to become profitable before investing was a bad bet.
> <i>"Amazon famously remained unprofitable due to reinvestment and waiting for them to become profitable before investing was a bad bet."</i><p>Amazon wasn't profitable because it reinvested earnings into growth, while SpaceX is funding it's growth by taking on very significant levels of debt (which will take a big chunk of future earnings just to service). These aren't comparable from a risk perspective.
Mostly owned by Elon who has 84% of the voting rights. Completely his entity and it can’t be denied that the value of an interesting space business has been massively inflated by tacking a worthless AI business onto it.
So is spacex growing like Amazon was? There is no evidence of growth. And no, Google renting them infra grom then is not growth. If it waa, AllBirds is the next unicorn
> Profitable isn’t related to “worth the dollars”. You need to look at income and how much is being reinvested into growth. Amazon famously remained unprofitable due to reinvestment and waiting for them to become profitable before investing was a bad bet.<p>Sure, but we the only thing we know about the company is the current S1 filing. Need to time to see what all of that looks like. Fast tracking it and essentially forcing other people to buy without scrutinizing is the problem. They may very well be worth the money they claim, but we won't know until after they've proven it. That's what the rules are there for.
> SpaceX is obviously majorly owned by Elon, but it’s also owned by regular employees, a bunch of private investors and other funds that regular people invest in.<p>Is it really owned by them if Elon retains most of the voting rights anyway?
Effectively it is solely owned by Elon and other people have an equity stake. This is another huge risk. You have to trust Elon not to get distracted and decide to hard pivot to something else.<p>Look at Tesla and their hard pivot to humanoid robots. He is all in on robots which about a dozen other companies already make and are largely unprofitable in making. He is betting AI rapidly improves in a way that allows robots to become rapidly more useful and there is zero evidence that is feasible in the next 5 - 10 years.
> <i>Is it really owned by them if Elon retains most of the voting rights anyway?</i><p>Owned by various folks. Controlled by Elon. Granted, I don't know how Texas law deals with minority rights.
> Profitable isn’t related to “worth the dollars”. You need to look at income and how much is being reinvested into growth. Amazon famously remained unprofitable due to reinvestment and waiting for them to become profitable before investing was a bad bet.<p>Amazon met profitability requirements and went into the SP500 at around $2.40 in November 2005. Two years before it was $2.70. Six Years before it was $4.40.<p>Two years _after_ listing it was $4.50. Six years after it was ~$10.<p>Waiting for profitability seems like it was a good bet.
> They weight by free float so it would been something like 0.3%. Hardly the end of the world<p>That's one way to look at it. At a personal level, it's a small sliver and if it were to drop, its influence on your balance isn't much. So that's true.<p>Another way to look at it is that with ~200 million people owning index funds, all their funds balances together, even a tiny fraction of a percent is a massive amount of money being force-fed into spacex, which is to say, mostly into Elon's pocket (since he owns vast majority of the shares).<p>So why is it fair to change the rules to give this massive wealth transfer to Musk, who certainly does not need the extra money?
"they only be stealing a tiny amount so not worth doing anything"
Its a sensible move. The spaceX IPO is a mess, and if it doesn't go full enron I'm not sure what will happen to the wider market.
I'm quite relieved as the S&P should be stable and slow. But with that caveat said, is this why the S&P 500 dropped off a cliff on Friday? If so, why?
The general consensus is stocks nosedived after the strong jobs report, because strong labor market means its more likely Fed will hike interest rates to curb inflation.
No. All index dropped on Friday.
Impossible to know for sure. But I would speculate a lot of investors are "bullish" on these three companies and would rather invest more on them.
Stocks and money. It's so boring.<p>I will go drive my old German car now, and get a bit drunk in a bottle of Nebbiolo while listening to some French lunatic with a piano.<p>Enjoy your trip to Mars and your self driving toy cars. The world is off its rails. Bit time.
just be sure do it in that order and not the other way around
i fully fully agree with you.
What's your SKILLS.md? Is your flow multi-agentic?
Sir this is a message board run by an US-American venture capitalist organisation; frankly what do you expect
Dude, are you me? :D
This is very smart of these folks because for just three companies, they can't ruin the trust and impeccable reputation they have built over the years.<p>This decision alone is worth several trillion dollars.
Crazy to see the Twitter behavior here of really smart, well conveyed top level comments replied to by weird propaganda pushing bottom feeders.
HN discussion quality has deteriorated dramatically, especially for anything AI related.
One of my indices of mania. You saw similar comments for crypto, blockchain, NFT, VR.
Sadly you are absolutely correct. The quality has nosedived in the past 1-2 years. I am not sure the exact cause but one of the things I noticed is a massive uptick in users who have insane post counts with sub 1-2 year history.<p>Breaking the rules but it does feel very much like Facebook or Reddit where there are distinct hive minds on topics and it just becomes a pissing match between brain-dead individuals.
Mind that the host of this site has an interest in keeping the hype going on ...
I suspect this is due to fatigue. I admit I often post low quality replies under AI slop posts, simply because flagging them does nothing when they are somehow upvoted above and beyond anything human made.<p>This fatigue also causes a lot of readers to skip the AI threads, meaning less self-moderation of the forum through voting.
The top level comments are not smart or well conveyed, they are just the other side of the internet echo chamber. “Good, the rich don’t need money”, etc.<p>I think Elon owned companies are just a third rail for any kind of intelligent discussion because it turns into Elon fan boys arguing against Elon haters.
Yesterday:<p>"SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P" (bloomberg.com) <a href="https://news.ycombinator.com/item?id=48405718">https://news.ycombinator.com/item?id=48405718</a><p>Ars used to do deep insightful articles a couple of days after the news but today it's just regurgitated blogspam that is 2 days old news. And way more political. It's sad.
If you have any doubts, I highly recommend to review the stock price history
of GPRO(GoPro), BYND (Beyond Meat), CGC (Canopy Growth), TLRY (Tilray).<p>These are just some somewhat recent IPOs that come to mind, I am sure I am forgetting some.<p>In the case of GPRO, look up their first quarterly reports after the IPO. Pure comedy gold.
A lot of comments here are saying that the impact on the S&P would have been 'minimal' since the S&P is float weighted. So SpaceX would have been ~0.3% of the index.<p>The point isn't that the impact would have been minimal. It's that changing the rules to suit the rich and connected is the literal definition of crony capitalism. Why should SpaceX get exemptions from entry requirements to the S&P when every other company before it didn't?<p>Trying to justify it based on an argument that it would have been 'just' $200 billion, is absurd since that $200 billion is coming largely from the public via index funds that would have been forced to buy SpaceX shares.
> Why should SpaceX get exemptions from entry requirements to the S&P when every other company before it didn't?<p>The rules have never been set in stone and changed a number of times since the S&P 500 was created. The current set of rules are based around the old way of companies IPOing and growing into something that could be included. Now, companies are staying private longer and IPOing with huge valuations.<p>Take AI/Elon emotion out of it for a second, and there is a rational debate to be had if multiple 1T+ market cap companies should be accommodated for in an index that's supposed to represent the 500 largest/most influential US companies. If these companies are still in the 1T+ ranges a year from now, I suspect the S&P may change some rules to get them in with the idea that the market has spoken.
> <i>It's that changing the rules to suit the rich and connected is the literal definition of crony capitalism. Why should SpaceX get exemptions from entry requirements to the S&P when every other company before it didn't?</i><p>The S&P grandfathers in loads of shit. Google and Berkshire got to be the only special babies with multiple classes of stock for a few years.<p>The S&P tries to represent large cap American stocks. There was a genuine debate around whether SpaceX <i>et al</i> represent large cap stocks. Elon <i>et al</i> tried to put their thumbs on the scale, of course, but that wasn't the driving concern, this has been a debate that has been happening for a while.<p>The weird thing is linking it to Elon is absolutely titillating. So that's what influencers did. It's a maddening story. But it really isn't true, and it was even less true when the S&P rule changes were being misrepresented as <i>faits accomplis</i>.
> Why should SpaceX get exemptions from entry requirements to the S&P when every other company before it didn't?<p>I could give you a lot of non-stocks related examples of why rules should not be set in stone.
Is that... no, it can't be.<p><i>squints</i><p>Is that an institution working for long-term stability instead of short-term gain?<p><i>looks through binoculars</i><p>Holy hell... it is!
I wonder if profitable means that investment must be recouped or just if your operational expenses must be compensated by your earnings.<p>Anthropic is becoming "profitable" while burning a series H of 69 bns usd. Does it count as profitable?<p>I'm curious if someone well versed in finance can answer, because from my uneducated perspective, it's not profitable to burn billions in order to make a billion.<p><a href="https://www.cnbc.com/2026/05/20/anthropic-revenue-explosive-growth-ipo-profitable-quarter.html" rel="nofollow">https://www.cnbc.com/2026/05/20/anthropic-revenue-explosive-...</a>
> <i>wonder if profitable means that investment must be recouped or just if your operational expenses must be compensated by your earnings</i><p>S&P requires profitability (<i>i.e.</i> net income) according to GAAP. That definition incorporates both ROA and operating income.
EBITDA is typically used to evaluate profitability.
Finally some adults in the room.
Related discussion here:
<a href="https://news.ycombinator.com/item?id=48405718">https://news.ycombinator.com/item?id=48405718</a>
They don't make decisions like that out of wisdom and restraint. I imagine they got calls from Vanguard and others after index funds themselves got calls from institutional investors.
It's a risky investment, yes there's a chance it could go to the moon, but it could also plummet to earth.
Anyone knows what MSCI World will do?
This is a duplicate thread.<p>Previously: "SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P" - <a href="https://news.ycombinator.com/item?id=48405718">https://news.ycombinator.com/item?id=48405718</a>
Duplicate: <a href="https://news.ycombinator.com/item?id=48405718">https://news.ycombinator.com/item?id=48405718</a>
Thats good honestly and a big relief
Thank goodness my portfolio is safe from these junk papers.
Dodged a bullet... seems like they still have integrity.
Smart choice imo. One pass with the SRT wipes their moat out overnight.<p><a href="https://github.com/space-bacon/SRT" rel="nofollow">https://github.com/space-bacon/SRT</a>
Good. Financial grift needs to end. Passive investment has become slightly too passive. S&P saved us. We weren't so lucky when they were rating bonds before the GFC. Glad they seem to have grown some ethics and are not bending the knee to the rocketman.
Fast entry rules are terrible.
There is an old adage IPO - It's Probably Overpriced.
Warren Buffet explained why: It's the issuer who chooses the price and time to enter the market. They will pick circumstances that suits them best. The chances that an IPO is a better deal than multiple other companies available in the auction market at that time which didn't get to choose the timing is close to 0 and it's not worth thinking about it - just don't buy IPOs ever.<p>I don't care about profitability, sustainability, ESG scores or anything like that. If the market is pricing unprofitable company at hundred of billions maybe there is a good reason for it. I do care about market having time to evaluate the company so index funds buy at fair prices. For this you need time and enough float and volume. Time being the main factor.
This is REALLY GOOD news for every passive investor. They try to game the system with this one, big time. There should be hearings about this, and new laws need to put in place to prevent something like this.
[dupe] <a href="https://news.ycombinator.com/item?id=48405718">https://news.ycombinator.com/item?id=48405718</a>
Kudos to S&P 500. Vast majority of the world has no clue how trillions of $ from their pension funds is being funneled to the select few. Absolutely pathetic.
> <i>no clue how trillions of $ from their pension funds</i><p>Pension funds don't tend to follow the S&P 500, much less automatically. They're sophisticated institutional investors like CalPERS [1] who dabble in everything from public stocks to private equity.<p>It's other retirement assets, <i>e.g.</i> 401(k)s and IRAs, that tend to follow the S&P 500. But again, with substantial variation.<p>S&P including these companies would have driven a lot of money towards them. But there was a lot of misinformation around the magnitude of that drive, as well as the breadth of whom it would affect.<p>[1] <a href="https://en.wikipedia.org/wiki/CalPERS" rel="nofollow">https://en.wikipedia.org/wiki/CalPERS</a>
In the US at least, many pension funds are not sophisticated, they're small, underfunded, and getting taken for a ride by expensive advisors who promise fantastical returns that will help dig them out of their funding ratio hole. Many would be better off using an S&P 500 index fund for their equity component instead of getting wined and dined into an illiquid, opaque private equity investment.<p>Telling that among OECD countries, the US is an outlier in having a much lower average funding ratio, and this despite the fantastic performance of the US stock market over the last 15 years.
> <i>many pension funds are not sophisticated, they're small, underfunded, and getting taken for a ride by expensive advisors</i><p>Who tend to come up with bumfuck benchmarks other than the common ones. Sometimes for good reasons. Often to justify their own comp.<p>> <i>Many would be better off using an S&P 500 index fund</i><p>Maybe. They <i>would</i> probably be better off with some total-market funds (instead of biasing towards large caps, especially if they're small). But my point stands: pension funds don't tend to automatically follow any major index, much less the S&P 500 proper.
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It's quite clear that there is an effort to engineer mega financial vehicles that index tracking funds are forced to buy. The incentive to do so is massive, and there is nothing illegal about it.<p>As a holder of index funds such as the S&P, I'd much prefer that these vehicles are excluded for at least some period of time to ensure that the greater fool isn't simply my index portfolio.
> It's quite clear<p>In the same way 9/11 was quite clearly an inside job.<p>Alternatively, a crop of big companies with real, potentially world-changing technology are going public.<p>This isn’t exactly pets.com we’re talking about.
Are you happy to be invested in Tesla? It is not profitable quarter to quarter and is included in your fund.<p>Why do you tolerate that and not this?
I did, in fact, use words. Would you prefer heiroglyphics?
All of those are real, natural, organic and, might I add, "actual" words.
The comment above is perfectly clear, and if you have been living under a rock since the Reagan years, that's on you.<p>See Elon talking about Tesla finally joining the S&P 500 so index funds would finally have to buy its shares. See a hundred examples where socialism is reserved for the few, the jungle and legal constraints for the rest of us.
A bit tangent, as I never had a single thought about investing any of the few precious attention moment into financial theaters.<p>if I get it this is an index to invest in common in distributed wallets chosen and managed by an organization named S&P?<p>I'ld be interested in something similar, but aiming at growing cooperatives, non profits, externally checked for alignment organisations striving to benefit humanity as a whole. It doesn't have to be something that have strong garanties of direct personal financial profits, just no way it makes me in personal bankrupts, zero personal gain would be ok, staying ahead of inflation nice to have, and having some profits back would be acceptable.<p>Please be kind or hold from losing time and energy for everybody with aggressive answers.<p>I'm just considering ways to make sure as few as possible resources end up in the control of techno fascists.
> something similar, but aiming at growing cooperatives, non profits, externally checked for alignment organisations striving to benefit humanity as a whole<p>There are a lot of investment funds like this, usually called something like "ESG" (environmental, social, and governance) funds.
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Major W. Regular people were going to get robbed blind.
> <i>Major W. Regular people were going to get robbed blind</i><p>Not really. One, it was unlikely to happen. The market not pricing in any rebalancing communicated that. Two, the magnitude–even for the S&P 500–would have been small. About a third of stocks are in passive strategies, about 15% in any index, and while most of that is the S&P 500, the index market is incredibly competitive.<p>S&P made the right move. But the tragedy this episode has revealed, at least to me, is in how venal and influential this new breed of financial influencers on YouTube and X are, and the degree to which they're willing to misinform to get clicks.
What was unlikely to happen? It already happened in Nasdaq. It’s nice that it didn’t for S&P but for most investors it already did happen, so I’m not sure the ‘whatever’ attitude is warranted.<p>Also, since when is it appropriate/intellectually OK to respond to allegations of corruption by saying ‘stop freaking out, it’s only a small amount of corruption PER PERSON’.
> <i>What was unlikely to happen?</i><p>S&P adopting the rule changes.<p>> <i>It already happened in Nasdaq</i><p>NASDAQ 100 is marketed as a tech-focussed fund. It's also way smaller. And it makes sense for it to include new issues. Total-market funds are also being adapted to include these, and again, that makes sense.<p>> <i>for most investors it already did happen</i><p>What do you mean? For the vast, vast majority of investors, nothing happened. If S&P had adoped these rules, the majority of investors would still be unaffected.<p>> <i>when is it appropriate/intellectually OK to respond to allegations of corruption by saying ‘stop freaking out, it’s only a small amount of corruption PER PERSON’</i><p>I'm saying the allegations of corruption were misplaced. The rule changes have been mooted for years. Did Musk <i>et al</i> try to put their thumbs on the scale? Sure. <i>That</i> should be called out.<p>But the scaremongering that followed was full of factual misrepresentations. Moreover, it presumed corruption across the board versus certain actors trying to corrupt a process, all for the purpose of getting views.
It’s not just Nasdaq-100 it’s Russell indices too, which are way bigger by the way (not that it matters).<p>Regarding misplaced corruption allegations. Virtually everywhere it is illegal to both give a bribe as to receive a bribe. It’s not just Musk et al who should be called out.<p>As for the unnamed sources doing the scaremongering, it seems you should be calling those specific people out instead of downplaying this whole issue. You’re dismissing the argument not on its merits but because some people argue for it badly.
> <i>It’s not just Nasdaq-100 it’s Russell indices too, which are way bigger by the way (not that it matters)</i><p>Russell does total-market indices. S&P also changed its rules for total market because it pretty clearly makes zero sense for total market to ignore a few trillion dollars of the market.<p>The NASDAQ 100 change has some capability of being sketchy due to Nasdaq wanting to win the listing. Russell, eh, not seeing it. They're just being Russell.<p>> <i>it seems you should be calling those specific people out. Instead you’re downplaying this whole issue because some people overreacted</i><p>It's a couple YouTubers. No crime of the century. But from what I've heard from the RIA community, a not-inconsequential amount of fees are being generated in the Bay Area from folks rotating out of low-fee index funds into bespoke nonsense because they are scared about a 0.3% change they think happened that didn't ever occur.
So what that it’s total market? We must be talking about different issues. The main issue for me is that the seasoning window was reduced. Of course eventually spcx should be included, I’m not arguing against that (and I haven’t heard anyone else argue that convincingly or at all either).<p>If everyone expected the price of the stock to remain the same or higher after the seasoning windows then why were those with the most to lose if it did not, lobby so hard to change the rules?<p>Also, what do you mean the 0.3% thing never happened? The ipo hasn’t happened yet, so obviously the index rebalance hasn’t happened.
> <i>So what that it’s total market?</i><p>Total market is meant to be total market. It isn't slicing out large caps, like the S&P 500. The assumption was new issues would be too small to matter. That's clearly changed.<p>> <i>main issue for me is that the seasoning window was reduced</i><p>Seasoning really only matters nowadays in respect of lockups. Private markets provide a lot more price signal than we had previously.<p>> <i>what do you mean the 0.3% thing never happened?</i><p>S&P 500 won't include SpaceX. The magnitude of the effect of including SpaceX would have been on the other of about 0.3% for the S&P 500. (The other indices collectively matter less than individual allocators at <i>e.g.</i> BlackRock and Fidelity.)
If you think seasoning windows don’t matter and pre ipo price signal is already great, true and fair, explain Cerebras price after IPO in the midst of one of the biggest sectoral bull runs in history.
It was unlikely to happen anywhere but the Nasdaq-100, because only Nasdaq has the incentive to do it: <a href="https://news.ycombinator.com/item?id=48411713">https://news.ycombinator.com/item?id=48411713</a>
> <i>because only Nasdaq has the incentive to do it</i><p>I'm not going to say Nasdaq didn't do this corruptly. But there are plenty of good reasons for the NASDAQ 100, an index marketed as being tech focussed, bending over to include AI issues that don't require nefarious explanations.
But… it’s not just nasdaq it’s Russell indices too.
Meanwhile the NASDAQ fell 4.18% Friday just been. This seems more than just a coincidence, people have been talking about pulling investment ahead of the SpaceX IPO, and the latest market activity makes me think the discontent is tangible now.