SpaceX stock (SPCX) fell sharply on Thursday, extending a pullback that has emerged after the stock’s explosive rally following its record-breaking initial public offering last week.
Shares of Elon Musk’s space and artificial intelligence company dropped 5% in early trading as investors took profits after a rapid ascent that briefly made SpaceX one of the world’s most valuable publicly traded companies.
The decline came even as broader US markets rebounded from the previous session’s weakness.
The S&P 500 and Nasdaq Composite rose 0.8% and 1%, respectively, while the Dow Jones Industrial Average gained 210 points, or 0.4%, as investors looked past the Federal Reserve’s latest policy decision and recovered from Wednesday’s sell-off.
Post-IPO rally begins to cool
SpaceX has been one of the market’s most closely watched stocks since its blockbuster debut last week.
The company offered shares at $135 in what became the largest IPO on record.
Investor enthusiasm initially drove the stock sharply higher, with shares surging more than 40% within days of listing.
The stock’s momentum peaked earlier this week when shares traded as high as $225.64, representing a gain of approximately 67% from the IPO price.
However, the rally has begun to lose steam.
Shares declined 5% on Wednesday, closing at $191.82, before extending losses again on Thursday.
Despite the recent weakness, SpaceX remains substantially above its IPO price and continues to command one of the largest market capitalizations in global equity markets.
At Wednesday’s close, the company’s valuation stood at approximately $2.52 trillion, placing it just below Amazon by market capitalization after briefly surpassing both Amazon and Microsoft earlier in the week.
Market conditions add pressure
The broader market backdrop contributed to Wednesday’s weakness.
The Nasdaq Composite fell 1.3% after the Federal Reserve left interest rates unchanged while signaling the possibility of a rate increase later this year.
Investors also reacted to retail sales data that suggested some softness in discretionary consumer spending.
As a newly listed company, SpaceX remains particularly sensitive to technical trading factors that often accompany major IPOs.
The introduction of options trading, portfolio positioning by institutional investors, and shifts in ownership among different investor groups can all have an outsized impact on share-price movements during the early weeks of public trading.
Index inclusion could provide support
Despite the recent pullback, upcoming index additions could create a new source of demand for SpaceX shares.
The company is expected to become eligible for inclusion in the Nasdaq 100 after just 15 trading days following recent rule changes by Nasdaq Inc. that allow faster entry for large newly listed companies.
FTSE Russell and MSCI have also introduced similar measures designed to accelerate the inclusion of megacap IPOs into their benchmark indexes.
Those changes could have meaningful implications for demand.
Analysts estimate that inclusion could drive between $7 billion and $10 billion in passive inflows as index funds and ETFs adjust their holdings.
The expected passive buying could be particularly significant given SpaceX’s relatively limited free float.
Like many newly public companies, SpaceX’s insider shareholders remain subject to lockup agreements that restrict stock sales for several months following the IPO.
As a result, the available supply of shares remains constrained while demand from index funds and exchange-traded funds is expected to increase.
That combination of rising passive ownership and limited share availability could provide additional support for the stock even as the initial post-IPO enthusiasm begins to moderate.