Previously: "SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P" - https://news.ycombinator.com/item?id=48405718
(I also don't want them to create special exceptions. The S&P 500 has pre-existing inclusion criteria, and I'm glad they're sticking to their rules.)
OK, then put your money in VTI/VTSAX instead of a S&P 500 fund. I own some VTI and also some FXAIX, you can do the same thing and choose which index to buy.
That's like saying that if Nvidia performs way better than an index fund, then the index fund will shift to consist only of Nvidia.
In any given year, there are plenty of index funds that outperform the S&P 500. They don't freak out over it.
S&P 500 is volatile over 5 years - I'd argue even over 10 years (see the charts at https://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-i...). The whole point of investing in it is for much longer windows.
So yeah, perhaps after 10 years they'll change once they'll see other index funds doing better, and have data to back up that in the long term, early inclusion didn't hurt.
Any individual can buy as much as they want.
I'm not disagreeing that people invest this way, but I'd like to point out that past performance does not imply future performance, and that investors should consider factors other than just past returns.
> To join the S&P 500, a company must demonstrate positive GAAP net income in both its most recent quarter and the sum of the trailing four consecutive quarters
Anyway, if other indexes add it, and it fails spectacularly, money will shift to those funds that do better.
Neither SpaceX, OpenAI or Anthropic have a future. What's a shame is that had Elon not merged SpaceX with xAI it might've actually had a future - but he had to go and ruin it.
What an idiot.
I'm greatly relieved that at least one major institution in the markets is showing restraint and exercising caution. I'm also a little surprised at the rationality given what we've seen in the past year or so.
The whole thing is disgusting and the financial sector should be collectively ashamed of themselves.
No, it did not. The market moved in reaction to earnings misses from e.g. Broadcom [1] and the strong jobs report.
[1] https://finance.yahoo.com/markets/article/broadcom-stock-sin...
Yes, very easily, American households alone plop a few hundred billion to over a trillion dollars into the stock market every quarter. Whether investors want to is another question. (The answer, at least to the tune of $75bn for SpaceX, seems to be yes.)
Just like creditors demand higher rates on investment grade bonds, investors are demanding a higher risk premium if they're going to be expected to keep piling in cash to this particular sector that's diluting and raising.
I don't think anyone can say this until the IPO goes out. Right now, all we're seeing is discount rates being adjusted market wide in anticipation of a rate hike.
There is never a singular reason. But there are negligible reasons. S&P not changing its rules was a negligible reason for today's tanking.
Isn't it all subjective in the end because nobody really makes their trades with verifiable notes expressing the exact reason. So we can only guess right?
Precedent and timing. Rates-related news is always going to massively shift the market, and the market shifting right after the jobs report is a pretty clear signal.
Moreover, S&P holding course wasn't new information–there was zero evidence of anyone pre-trading a rebalancing, which means the market didn't expect S&P to materially change its rules.
Arm and AMD pumped to insane levels on basically nothing.
What proof is there for your narrative versus mine?
If you are asking why one theory tends to be better than another is qualitative at best, but irrelevant quick. Once the two theories settled in people's brains, it only exacerbated the sell off. In a sense, the theories were irrelevant. Their impact, however, was not.
In other words, I think you have the entire structure all wrong. It is not binary at all. Or, at least, it does not require for it to be mutually exclusive.
What does this mean?
They pumped ai adjacent stocks to draw retail in, to provide liquidity now when they are in theory forced to purchase SpaceX.
Effectively getting people to buy semi-ai stocks at a premium to fund their forced purchase for SpaceX.
What?
SpaceX is the hype not AMD guy
On a side note, I find it very sad that strong job numbers make stock plummet.
It really is an indication that the stock market is mostly speculative and not concerned about the actual economy.
Not really. Strong jobs numbers in the midst of 3+ percent inflation means rates should go up. That, in turn, dilates time on future earnings. So making a company's future earnings more-heavily discounted will be a net drag on valuations even if the jobs numbers indicate those numbers, near term and far, will be higher.
Stronger wages → stronger consumption → higher demand-pull inflation.
But higher inflation implying that “rates should go up” is central bank doctrine. It’s not a general law of how economies function.
Central banks intervening with interest rate adjustments is what distorts the prices of equities downward, when inflation rises.
Without central bank intervention, inflation should theoretically push equities higher (a highly-inflated economy driven by rising demand is by definition a well-performing economy!).
Central banks intervene because runaway inflation can be harmful to wage-earners (they save in dollars, not assets).
But I’m not sure if a 2–3% inflation target is ideal. It seems to me that this arbitrarily low inflation target restricts the growth of the economy in ways that might affect wage-earners, defeating the stated purpose of monetary policy, since higher rates also have the effect of curbing job growth as well as raising the cost of servicing mortgages.
Let's put it this way then: the central bank can raise rates or it can crash the economy into a brick wall. In that sense, rates should be raised. We have the least competent regime in history right now though, so they might choose the latter option.
Uh, no. If you have no central bank, more consumption and more employment means more demand for money. Ceteris paribus, that will raise rates. (Our own history with free banking is more complicated since the only inflationary period was driven by specie introduction from California's gold rush. The predominant problem in antebellum America was deflation and bank collapses.)
You're correct inasmuch as central banks quicken this reaction, and–when done properly–dampen it. But the fundamental engine is emergent, at least for nominal rates.
Why would it be? Non dividend stocks only have value because other people think they have value (i.e. greater fool theory).
Only dividend stocks have some base value connected to how well the company does. (Higher dividend if it does well, lower if it does poorly.) But they still also have a lot of "greater fool" value.
Beyond dividend, stocks have no intrinsic value. Nowadays you don't even get a piece of paper to wipe your ass with anymore, it's all digital.
Alphabet buys back shares equal to the GDP of Uganda every year. There are more ways to return capital than through dividends.
This can't happen in practice. It would require the company's value to fall below the buyback amount, which is itself a fraction of the company's cash and thus value. (Like, yes, I could engineer a weird failing company where this could happen. But that would just be describing a peculiarity of how the company failed. If the company is doing fine, this doesn't occur.)
If you have trouble with a public-market buyback, consider how tenders are done in private markets. You're a shareholder who has the option of selling back your shares. It's a direct way for you to tap the company's treasury as a shareholder. The company's shareholders could vote to distribute all the cash and assets in a buyback. But we have a word for that: liquidation.
That's not how it works. If the company has profits they can distribute it in many ways. Dividends is one, but not a great one because it forces you to pay taxes on it this year. Or they can buy back shares which increases the share price, which is better because then you don't have taxable income on that until you decide to sell. Or they can reinvest that money into the business to grow it, which is the ideal option, although not always possible.
Growth stocks trade on a multiple of earnings: earnings have intrinsic value.
The worst is growth stocks that are a wrapper around actual dividend stocks. Beyond number going up, what actual concrete utility are you getting? Beyond waiting for the line to go up to eventually sell it to a greater fool, what can you _actually_ do with it? It's not real.
It is only real because enough people believe it is real. And they believe it because they want to believe it, because they are greedy and want easy money.
Once the market tanks and the greed turns into fear, there will be bagholders and the brokers will be laughing. The people who skim fees and percentages will be cozy.
"Now is the time to invest" they will say, because from here the line can only go up! And it will, eventually, because people want to believe, because they are greedy.
The only thing the stock market makes money on is greed. That is the thing that drives stock value. Not the economy.
And there are other reasons to be cautious. Many passive funds don't license the SP500 and instead mirror it with their own synthetic index. They are not bound to respect this decision.
Given how that's played out in the movies, I'd be happy about that.
You'll be shocked to know they have changed the inclusion rules a number of times.
I suspect if in 12 months these megacaps are still megacaps, they will revisit the profitability rules. It's hard to have an index with 500 of the largest, most significant companies leaving out companies with trillion dollar market caps.
The S&P recovered from Dotcom bottom in ~7 years while the Nasdaq-100 took 15 years. Likewise Nasdaq took 3.5 years and the AI hype to recover back to its COVID highs in 2024 while S&P had the same recovery in about 2 years.
This is the downside to Nasdaq having higher returns in tech bull markets.
So the indices have a very different volatility profile by design, we should be happy to have the choice rather than have them all converge to the same product.
I have 1 trillion shares, and I sold 1 to a mate for a dollar.
Total company revenue is like 50 bucks a month and profits are nil.
Can I be in the S&P 500 too?
Of course this all becomes moot if all the companies crash out. I don't think enough people are asking what if these companies don't crash out though.
Did it really used to require that you own "15 railroads" ?
Regardless, the S&P 500 also excludes a company like Microstrategy (the company that holds Bitcoin) from their index, had excluded Robinhood for a wile due to missing the profit requirements, and so on. It was never "meant" to cover the 500 largest companies by market cap, and has generally resisted pressure to change that.
They have resisted that pressure historically, and remained fairly conservative. But if these companies stay in the 1T+ range, that's an amount of pressure they have not had in the past. You also missed one of the largest exclusions for a time for profit reasons that's also relevant here - TSLA.