June has been a history-maker for Wall Street. Not only did the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite catapult to new highs earlier this month, but investors also witnessed the largest-ever initial public offering (IPO) take shape, courtesy of Space Exploration Technologies (SpaceX)(NASDAQ: SPCX).
Elon Musk’s artificial intelligence (AI) and space economy conglomerate debuted on June 12 and ultimately raised $85.7 billion (including the underwriters’ overallotment) — nearly triple the amount that overseas oil giant Saudi Aramco raised with its December 2019 IPO.
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Before SpaceX went public, several committees amended the criteria for the inclusion of megacap stocks in major indexes.
For instance, the U.S. Russell Indexes drastically shortened the inclusion timeline for newly public large-cap stocks from once per quarter to just five trading sessions.
But the headline change came courtesy of the Nasdaq (NASDAQ: NDAQ) Global Indexes. Effective May 1, the low float requirement for inclusion in the Nasdaq-100 has been waived.
More importantly, any non-financial company that would rank among the 40 largest companies in the Nasdaq-100 can be fast-tracked into the index after 15 trading days. Accounting for the Juneteenth and Independence Day holidays, July 6 marks the 15th trading day for SpaceX stock.
As early as July 7, SpaceX will be eligible for addition to the growth-stock-dominated Nasdaq-100. Index funds and growth-focused exchange-traded funds that track the Nasdaq-100 will be required to purchase shares of SpaceX stock. The company’s inclusion in the Russell 1000, Russell 3000, and Nasdaq-100 should lead to tens of billions of dollars in buying demand.
However, Nasdaq-100 inclusion eligibility isn’t the only catalyst that aligns on July 7. It’s also the end of the participating underwriters’ quiet period.
Most IPOs have a lead underwriter and a couple of participating underwriters (usually major banks/financial institutions). SpaceX had 21 underwriters, with Goldman Sachs as the lead.
For participating (i.e., non-lead) underwriters, Securities and Exchange Commission (SEC) rules mandate a 25-calendar-day quiet period following an IPO. During this period, participating underwriters are forbidden from issuing research reports or initiating recommendations/price targets for the company they helped take public.
The SEC requires this quiet period to ensure that underwriters don’t unfairly promote a company in which they may have a vested interest.
July 6 will mark the 25th calendar day since SpaceX went public (including its debut day). This means a likely onslaught of buy recommendations and lofty price targets set to be issued on SpaceX starting on July 7.
While this perfect storm of positive catalysts could provide a sizable boost to SpaceX’s shares next week, keep in mind that Musk’s company also has an accelerated/staggered share lockup period. Insiders will have an opportunity to begin dumping their shares on retail investors as soon as the second trading day following the company’s first quarterly earnings release as a public company in August.
In other words, whatever pop SpaceX enjoys on and shortly after July 7 is likely to dissipate in the weeks that follow.
Should you buy stock in Space Exploration Technologies right now?
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
