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SpaceX
I wrote last week that the SpaceX IPO would be a pretty important test for market sentiment and its willingness to finance the future. Well, so far it has passed. The share price popped after the IPO and is up 15% since launch. However, only about 5% of the company’s shares are actually trading today. A thin float plus plenty of buzz can make for a pretty hot stock. Next week, SpaceX will start entering the MSCI, FTSE Russell and Nasdaq indices which will add a structural, passive bid for the shares.
If you are concerned this will distort these indices (which are the basis for trillions of dollars of ETFs and passive money) then I would not worry too much yet. The basis for inclusion is the 5% of shares that are actively trading and so the initial impact will be limited. State Street has estimated that SpaceX will be around 0.12% of the MSCI All-Country World Index for example. Whether you are a SpaceX bull or bear this isn’t going to change your life much.
But, in the short term, the market is very open to fund the future. This is good news for Anthropic and OpenAI (the two major model providers) and all the data centre and semiconductor investment that sits downstream of them. Emerging market indices (where many of the large semiconductor companies are based) are back at all time highs. Longer term, around half the free float of SpaceX becomes eligible to trade in 6 months’ time. And in a year SpaceX will potentially be able to enter the benchmark S&P 500 index. I am not sure I really trust the SpaceX price today. We may have to wait a while longer to get the fully formed market verdict.
UK Interest rates
If the SpaceX IPO has been broadly positive for markets, then so too have been recent developments in oil markets. It is striking to me that since early April equity markets have been pretty much ignoring the US/Iran conflict assuming a deal will get done. Interestingly, commodity investors, who you would have thought would be closer to what is actually happening on the ground, have been slower to react. But now they finally seem to be pricing optimism. Here is the oil futures curve today and where it was a month ago. This fall is striking to me: the cost of Brent Crude in August was expected to be above $105 per barrel a month ago. Today that number is $80.
And, mechanically, this has been good news for UK interest rates. I think the linkage here is too large: oil is much smaller share of business costs than it was in the 1970s for example. Yet the rates market still seems to march to its drumbeat. UK base rates are 3.75% today. A month ago that market thought they would be at 4.5% by April 2027. But as oil prices have fallen sharply so have the market’s expectations for UK interest rate rises:
I would expect this trend to continue. I’d be surprised if we see a rate rise at all in the UK this year.
And, finally, I am off to watch some cricket later this afternoon. It was about 5 years ago when I was watching some cricket that a client suggested I write a weekly client update, which is the genesis of this note. In one of my very early notes, I pointed out (a bit snarkily) that Economist magazine covers could be a pretty good “do the opposite” market indicator. I don’t really want to knock the Economist here, which remains a beacon of (mostly) excellent journalism. But I am glad to say it’s cover contra track record is still going strong. Here is cover for the May 2nd edition for example. Oil peaked on May 4th and is down over 30% since then. A good rule of thumb is that if a market story makes it to the front cover of a major newspaper, it might be time to do the opposite.
Chris Brown, CIO
cbrown@ipscap.com
The value of investments may fall as well as rise and you may not get back all capital invested. Past Performance is not a guide to future performance and should not be relied upon. Nothing in this market commentary should be read as or constitutes investment advice.
