SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P • Hacker News Board

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#191

Post by dmurray » Fri, Jun 05, 2026, 6:34 AM UTC

d--b wrote: post #174

rchaud wrote: post #112

Good. Indexes are supposed to be slow-moving, precisely due to their entry requirement of sustained profitability that skews towards mature companies. All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk. SpaceX and OAI stock will be available through Robinhood, Questrade and all the o…

It’s important to note that index funds will eventually get in, so it’s not like 401k will never be holding these stocks. It would be silly to assume that the stock is going to tank that much on day 1, on the asumption that there are not enough investors to buy the big three IPOs that are coming out this year. There is plenty of money in the market, and everyone knows index funds will buy these stocks when the compan…

To a first approximation, yes, the index funds all need to buy the stock on the same day.

An unexpected surge of buying like this should lead to a big price hike. But everyone knows it's happening, so you'd expect every hedge fund and proprietary firm in the world to buy the day before the index funds buy, and sell into the price hike. So in fact the price hike will be a day earlier than expected. But wait, anyone smart enough to see that should buy the previous day...

In this way the "smoothing" of the trading at entry and exit gets passed on to intermediaries: other market participants who are expert at this.

This all costs the index funds, because every dollar of profit for the other firms is a dollar out of the pocket of the end investor. And huge index events like this are a particular bonanza for these traders. But it probably costs less than you think. Ultimately it's a highly competitive market: the slippage from this approaches the extent to which the prop traders have a higher cost of capital, plus a small risk premium. And remember that they don't have to find "extra" money to fund this trade. When they buy SpaceX they will sell 499 other stocks, doing the same trade there in reverse. Here's a study that approximates the effect at 0.86%[0]. By comparison, the banks underwriting the IPO typically take around 6% [1]. Though this will be smaller for a huge IPO like SpaceX, while the index arb trade will be bigger.

[0] https://www.eastspring.com/hk/insights/deep-dives/navigating...

[1] https://www.pwc.com/us/en/services/consulting/deals/library/...

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#192

Post by qnpnpmqppnp » Fri, Jun 05, 2026, 6:37 AM UTC

tristanj wrote: post #153

majormajor wrote: post #138

Earlier quoted context omitted.

> If a significant percentage of the market is excluded from the index because they don't meet index inclusion criteria, then then index stops being a useful benchmark. So what's the reason for fast entry specifically? If it's a significant portion of the market and will remain so, it doesn't need an accelerated entry. A benchmark should be conservative about new entrants so that it doesn't turn from a market benchma…

Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds. In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO. These companies will likely never meet S&P profitability inclusion criteria for the nex…

> If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now.

To be clear, S&P 500 relies on float, not total US Market Cap, and Space X will have a tiny float.

Even if it was included, SpaceX would not account for 1-2% of the S&P 500 (more like 0.1%), so even if we reason on the basis of a benchmark, it's not a meaningful difference.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#193

Post by iririririr » Fri, Jun 05, 2026, 6:39 AM UTC

vannevar wrote: post #124

rchaud wrote: post #112

Good. Indexes are supposed to be slow-moving, precisely due to their entry requirement of sustained profitability that skews towards mature companies. All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk. SpaceX and OAI stock will be available through Robinhood, Questrade and all the o…

>All that an inclusion of these new companies would accomplish is a bailout of their stockholders by pension funds and ETFs where millions of regular people shoulder all the downside risk. Carvana is the poster child for this. It's astonishing that a company with a history of shady practices, and that has yet to offer a convincing explanation for why it is not a scam, is part of the S&P 500.

why go that far? herbalife moto is probably "we're a pyramid scheme scam" and they are 45% vs sp500 25% for last 12mo.

you'd better of investing scam500 than sp500 nowadays.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#194

Post by tristanj » Fri, Jun 05, 2026, 6:39 AM UTC

jddj wrote: post #187

tristanj wrote: post #153

Earlier quoted context omitted.

Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds. In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO. These companies will likely never meet S&P profitability inclusion criteria for the nex…

Maybe you know this already, but this reads like exactly the kind of reasoning that people looking back at irrational market euphorias point to as a sign things were about to go awry.

The purpose of a benchmark is to reflect the market. If the US economy is pumping out high-growth but overpriced & unprofitable companies via IPOs, at unreasonable valuations, the benchmark should reflect that.

It's not S&P's fault this is happening.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#195

Post by tristanj » Fri, Jun 05, 2026, 6:41 AM UTC

qnpnpmqppnp wrote: post #192

tristanj wrote: post #153

Earlier quoted context omitted.

Because the index needs accuracy. If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. The longer this company is not in the index, the longer this error compounds. In the coming few months, multiple giga-cap companies (SpaceX, OpenAI, Anthropic) are all planning to IPO. These companies will likely never meet S&P profitability inclusion criteria for the nex…

> If a company is 1-2% of the total US market cap and not included in the index, then the index is wrong right now. To be clear, S&P 500 relies on float, not total US Market Cap, and Space X will have a tiny float. Even if it was included, SpaceX would not account for 1-2% of the S&P 500 (more like 0.1%), so even if we reason on the basis of a benchmark, it's not a meaningful difference.

https://news.ycombinator.com/item?id=48407542

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#196

Post by ab5tract » Fri, Jun 05, 2026, 6:49 AM UTC

tristanj wrote: post #126

f33d5173 wrote: post #121

Earlier quoted context omitted.

An index is an index. It works fine as an index if it excludes one or two stocks. People seem to forget as well that this is a question of waiting a single year before it including the stock. It is literally just long enough to make sure the price settles, it's not some catastrophic thing.

> it excludes one or two stocks. It's more than that. None of SpaceX, OpenAI, nor Anthropic will meet the criteria, and they will make up a significant part of the US stock market. Each of these companies is heavily investing their cashflow into growing the company and are unlikely to be profitable many years. The inclusion criteria prioritizes companies that extract their cashflow into profit, and excludes companies…

And that approach famously hurt investors, the economy, and/or Amazon in what specific ways, exactly?

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#197

Post by Panzer04 » Fri, Jun 05, 2026, 6:55 AM UTC

dmurray wrote: post #191

d--b wrote: post #174

Earlier quoted context omitted.

It’s important to note that index funds will eventually get in, so it’s not like 401k will never be holding these stocks. It would be silly to assume that the stock is going to tank that much on day 1, on the asumption that there are not enough investors to buy the big three IPOs that are coming out this year. There is plenty of money in the market, and everyone knows index funds will buy these stocks when the compan…

To a first approximation, yes, the index funds all need to buy the stock on the same day. An unexpected surge of buying like this should lead to a big price hike. But everyone knows it's happening, so you'd expect every hedge fund and proprietary firm in the world to buy the day before the index funds buy, and sell into the price hike. So in fact the price hike will be a day earlier than expected. But wait, anyone sm…

0.8% of drag is a lot when you can do basically the same thing by not strictly following the index.

There are funds from Dimensional and Avantis that are basically just index funds but with a bit more leeway to avoid these obvious pitfalls, and from what I saw they do perform approximately 0.5% better per year.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#198

Post by Panzer04 » Fri, Jun 05, 2026, 6:58 AM UTC

HerbManic wrote: post #137

nsoonhui wrote: post #123

Earlier quoted context omitted.

Not to say I have an opinion one way or another, but why do you think that SpaceX odds to have a successful IPO is lower now?

Not OP but I will weigh in. The numbers for SpaceX were not looking great, they are burning cash faster than Starship crashing into the Indian ocean. The idea was that with a fast indexing, this would be mostly irrelevant as retirement funds would automatically buy into the IPO after 15 days thus bolstering the company before any sanity would prevail on the markets. Now that they have to wait a year for that point, t…

The real issue is that existing shareholders will all be eyeing each other wanting to exit at the highest price it'll ever be. That's a lot of selling pressure.

I can't imagine many people seriously believe SpaceX is a business worth 1.75T.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#199

Post by tristanj » Fri, Jun 05, 2026, 6:58 AM UTC

phlakaton wrote: post #169

tristanj wrote: post #136

Earlier quoted context omitted.

You have your history backwards. The S&P 500 was created in 1957 as a benchmark . The first investable index fund tracking it (Vanguard's) wasn't created created until 1976. Vanguard created their fund to track the benchmark , not the other way around. And if you need a second, different index to function as the true market benchmark because the S&P 500 no longer reflects the actual market, then you just agreed the S…

Because it's selective, the S&P by definition does not reflect the actual market. It reflects a subset of it. If you're comfortable with this notion of what the S&P does, then you ought to be comfortable with S&P applying the same methodology they've always used. There are other indexes you can reference if this particular sampling of the market isn't to your personal liking.

The S&P's historical inclusion criteria were designed to filter out unstable, illiquid questionable companies to get a view of large-cap US equities. That logic worked when every major American company was public and profitable.

That's not true any more. Today we have multiple giga-caps (SpaceX, Anthropic, OpenAI) vying to IPO, all of which potentially in the top 20 largest companies in the US market, all ineligible for S&P 500 inclusion because of the 12-month profitability rule.

You claim S&P can "apply the same methodology they've always used" but this is just factually wrong. The inclusion criteria are not sacred rules set in stone and S&P has rewrote them multiple times. For example, they banned dual-class share structures in 2017 to stop SNAP from joining the index, but reversed it in 2023 because they excluded too many companies. The rules get rewritten when the market changes, and it's clear the current market environment has changed.

Meanwhile, Nasdaq changed their rules to handle this situation. And S&P changed the inclusion criteria for the S&P Total Market Index so SpaceX would be included.

It's clear these inclusion rules are changing.

Re: SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

#200

Post by dwroberts » Fri, Jun 05, 2026, 7:00 AM UTC

Although it’s good they stood by their rules, elsewhere Reuters points out

> S&P Global said it would modify entry rules for its broader S&P Total Market Index and Dow Jones U.S. Total Stock Market Index, creating a pathway for SpaceX to join those less widely followed indexes.

So not really as principled as it seems

https://www.reuters.com/business/finance/sp-global-keeps-fas...