Index Fund Investing Has Been Flawless for 33 Years, but the SpaceX IPO Threatens to Break Everything
Key Points
The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite are abuzz ahead of SpaceX's expected IPO on June 12.
Index investing has been a bona fide moneymaker for long-term investors since the first U.S. exchange-traded fund made its debut in January 1993.
However, rule changes ahead of the SpaceX IPO will force index funds to buy shares of this trillion-dollar space and AI giant, leaving retail investors holding the bag.
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Wall Street is abuzz with excitement in anticipation of the largest initial public offering (IPO) in history: SpaceX. The Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) all hit new highs this week ahead of the expected June 12 debut of Musk's artificial intelligence (AI) and space economy conglomerate, which is aiming for a $1.8 trillion valuation.
While megacap IPOs should be exciting for Wall Street and investors, a narrative shift surrounding SpaceX has some investors (rightfully) less than enthused about its imminent debut. In addition to likely breaking Saudi Aramco's record cash raise, SpaceX threatens to throw more than three decades of index fund investing stability out the window.
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Index fund investing has been a winning strategy since 1993
On Jan. 29, 1993, the very first exchange-traded fund (ETF) was launched in the U.S., the SPDR S&P 500 ETF Trust (NYSEMKT: SPY). ETFs trade like stocks, but contain a basket of securities. Rather than purchase bits and pieces of 500 of Wall Street's most influential businesses, the SPDR S&P 500 ETF Trust offered a way for investors to gain instant diversification by tracking the performance of the S&P 500 with the click of a mouse or a call to their broker.
More importantly, the SPDR S&P 500 ETF Trust laid the groundwork for other index funds (i.e., ETFs that attempt to mirror the performance of an index, less fees and expenses). This includes the popular Nasdaq-100 and the U.S. Russell Equity Index Series, such as the Russell 1000.
Providing investors with a low-cost way to effectively match the performance of Wall Street's premier indexes has been a bona fide moneymaker for patient investors.
Each year, Crestmont Research updates a data set that calculates the rolling 20-year total return (including dividends) of the benchmark S&P 500 since 1900. Of the 107 rolling 20-year periods examined, Crestmont found that all generated a positive total return. Index fund investing has been flawless for long-term investors... until now.
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SpaceX is about to break several well-oiled investment vehicles
The pending SpaceX IPO prompted several indexes to revise their inclusion criteria.
Starting May 1, the Nasdaq-100 shortened the wait for inclusion from roughly three months to just 15 trading days for nonfinancial megacap companies with a top-40 market cap. The Nasdaq-100 also removed low-float requirements for index inclusion.
The U.S. Russell Equity Index Series will roll out the red carpet even faster for Musk's company, with the time to inclusion slashed to just five trading days after its debut.
Even the S&P 500 is considering shelving its rule requiring four consecutive quarters of GAAP profits and 12 months of trading to expedite SpaceX's inclusion.
Rule changes for the SpaceX $SPCX IPO:
-- Hedgeye (@Hedgeye) May 29, 2026
Index providers waived the profitability requirement and cut the seasoning window from 90 days to 5.
This forces over $30 trillion in passive 401k and retirement money to buy SpaceX at IPO valuations.
Bloomberg Intelligence estimates S&P...
In other words, SpaceX is forcing its way into America's popular index funds, and they're going to be forced to buy shares of this relatively low float IPO shortly after its debut. However, SpaceX is losing an exorbitant amount of money, runs a highly capital-intensive operating model, and is priced at roughly 96 times last year's sales, placing it very much in bubble territory. History hasn't exactly been kind to megacap IPOs since the late 1990s.
But perhaps worst of all, SpaceX's insiders will be using a staggered lockup period to dump their shares on retail investors.
SpaceX threatens to drag down every market-cap-weighted index it's added to, which is terrible news for the traditionally safe index fund investing landscape.
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