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Big relief for me. As a passive investor, I want the indices to follow the same passive strategy they always have, and specifically not make exceptions for spe
by zhivota 5mo ago
Big relief for me. As a passive investor, I want the indices to follow the same passive strategy they always have, and specifically not make exceptions for specific companies like SpaceX wanted.
Plenty of ways to get exposure to that stock without it going into the indices it is not qualified for.
- gizajob 5mo ago[flagged]
- JumpCrisscross 5mo ago> This news tanked 5% off the Nasdaq yesterday 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-sinks-12-as-ai-chip-forecast-disappoints-165602082.html https://finance.yahoo.com/markets/article/broadcom-stock-sin...
- vasco 5mo agoThe market moved in reaction to the totality of events that happened in the world all averaged out through the actions of the participants, anyone who says "this" was what happened on any day is wrong. Some days have dominating factors but even if the event is the dominant one, the reason why it has the impact it does might be a 3rd or 4th level effect.
- JumpCrisscross 5mo ago> anyone who says "this" was what happened on any day is wrong 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.
- altmanaltman 5mo agoBut how can you quantify that? There is no way to prove it, the market cannot say "I wasn't moved by this, I was actually moved by that and this part was actually just negligible." 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?
- JumpCrisscross 5mo ago> how can you quantify that? 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.
- khazhoux 5mo agoThank you! So sick of people always ascribing the market's movement to whichever narrative headline they pick that day.
- iugtmkbdfil834 5mo agoHeh. I would not discount narrative so fast. You may not believe it, but it does not mean others don't.
- kd913 5mo agoMy theory is hedgies and investment banks using semi and ai hype as a liquidity bridge to drop into SpaceX which happens next week. Arm and AMD pumped to insane levels on basically nothing. What proof is there for your narrative versus mine?
- JumpCrisscross 5mo ago> a liquidity bridge to drop into SpaceX What does this mean?
- kd913 5mo agoIt means financial companies have been illogically pumping semiconductor companies the last 5 months despite the profits, royalties and supply chain being entire worse than a year ago. 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.
- bakies 5mo ago> AMD is nothing What? SpaceX is the hype not AMD guy
- iugtmkbdfil834 5mo agoI will admit that I am starting to understand Musk's contempt for retail investors. edit: They have no problem lining behind supporting what is now effectively Musk oriented slush fund.
- d--b 5mo agoThe strong job numbers too. 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.
- JumpCrisscross 5mo ago> 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.
- andric 5mo agoYep. Job numbers are the “actual economy” – the actual economy is driven by wages and consumption. 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.
- JumpCrisscross 5mo ago> higher inflation implying that “rates should go up” is central bank doctrine 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.
- gizajob 5mo agoThat’s a lazy take. My spidey senses tell me otherwise.
- energy123 5mo agoand Meta saying they want to issue. Combined with the IPO scramble there's a lot of dilution and raising hitting the same sector in a very short period of time. Can the public markets pony up the cash in the short timeframe? It seems investors said no, or at least the uncertainty was high enough that they trimmed the risk.
- JumpCrisscross 5mo ago> Can the public markets pony up the cash in the short timeframe? 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.)
- energy123 5mo agoWhat I mean is that investors don't want to pony up the cash at current market prices. They want a discount. Then they will pony up the cash 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.
- JumpCrisscross 5mo ago> investors don't want to pony up the cash at current market prices 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.
- gizajob 5mo agoI thought most of those households was massively in debt?
- gizajob 5mo agoThat is what looked like the catalyst but seeing the response made me feel the confirmation from the S&P really was a big factor, particularly because the algorithms must all have been banking on the rapid inclusion for the AI companies which would keep the tech ship afloat at its current valuation. I don’t think the jobs report was enough either, and the market hasn’t really been reacting strongly to ideas about interest rates shifting, I’d say in the current climate them staying the same is priced in about as much as the, changing.
- mawadev 5mo ago-5%? Oh no panic sell everything now, its so over - Warren Buffet
- sscarduzio 5mo agoI agree, but… Plenty? Really?
- flakeoil 5mo agoJust buy the stock or buy a mutual fund which invests in IT, AI, Tech what have you. Sooner or later they will probably also be included in the general index funds.
- BlandDuck 5mo agoExactly. That's what the index funds would have had to do as well.
- duttish 5mo agoExactly. Once they have enough float and has had enough time for actual price discovery they'll be included in index funds like any other large cap stock.
- reactordev 5mo agoThis. This a risk stance where they want to see the performance in 3-6 months. I have no doubt hundreds of funds will buy in but the major index needs to be sure it’s not going to drag down the entire stack with its inclusion.
- prasadjoglekar 5mo agoYes. Plenty is correct. Fidelity let's you buy SpaceX at IPO with only $2K in the bank. 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.
- intrasight 5mo agoI think caution is most warranted, but I also think it's likely that SpaceX will become a real-life Weyland-Yutani Corporation (i.e. "The Company") of Alien and own space. But I'll be long dead before that plays out.
- matwood 5mo ago> the same passive strategy they always have 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.
- MikeNotThePope 5mo agoIt’s a list of the 500 largest profitable companies. Gotta make some bottom line $$$ to be included. At least that’s how it’s worked in the past.
- matwood 5mo agoIt also used to require 15 railroads, but the market moved on. They held tight on the profitability requirement with TSLA and missed a huge part of the growth. They may continue to hold the line on that going forward. But, if the AI companies grow their market caps, it's going to be hard to point to the S&P 500 as representing the most significant companies in the US market when trillions in market cap end up no represented. 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.
- tialaramex 5mo agoIt becomes moot if even some of the companies crash. If you try to say it works if some of them crash because some of them didn't you actually get that XKCD "Nobody has won the US Presidential Election without..." silliness. "OK, the rule should be you have to be profitable OR have an HQ in a city with two vowels in its name". Did it really used to require that you own "15 railroads" ?
- antasvara 5mo agoThe commenter is likely referring to the original S&P 90, which mandated a certain number of stocks in different sectors. At the time those numbers were 50 industrials, 20 utilities, and 15 railroads. The breakdown shifted as the economy changed until the 80's when they did away with sector quotas in favor of rules closer to today (basing allocation on market cap). 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.
- root-parent 5mo agoThis thread should be marked as dupe. But ChrisArchitect seems very picky... Previously: "SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P" - https://news.ycombinator.com/item?id=48405718 https://news.ycombinator.com/item?id=48405718
- zerobees 5mo agoI get what you're saying, but I think there's a contradiction between wanting to be a passive index-fund investor and having opinions like that. The core tenet of index investing is that the market knows better than you.
- alsetmusic 5mo agoThey appear to know more than you, too. They know not to change rules that have protected their investments for a chance to get into a risky bet on the ground floor.
- aloha2436 5mo agoPlenty of active funds also give you roughly market returns, and it's not very difficult to do the same if you're investing for yourself. The important differentiator for index funds is that they have extremely low fees and take up none of your time.
- outside1234 5mo agoThe S&P 500 has had these requirements for decades and the approach has worked. This is really a statement that they aren’t going to change what worked so that a few billionaires can manipulate it.
- lokar 5mo agoThat's simply not true. The core tenet is to buy mechanically according to some rule. Many indexes are not "the whole market".
- anonu 5mo agoYou'll eventually get exposure to it when it gets added in 12 months. Unless there are better profitability criteria. Ultimately it's all about market returns. If other indexes add it and outperform then eventually money will shift to those funds that do better.
- jgalt212 5mo agoI think it will be longer than 12 months, if ever. > 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
- jaylittle 5mo agoMore than likely none of these AI companies will exist 12 months from now. Their carcasses will be devoured by entities with enough money to buy up the scraps after the bubble pops and the market implodes. 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.
- AzzieElbab 5mo agoThe end is near!
- MichaelDickens 5mo agoWhat do you mean "better profitability criteria"? I don't want an index to exclude companies on the basis of profitability. I want it to hold the market. (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.)
- lazide 5mo agoEvery index has criteria, usually somewhat unique, or there would be no marketable difference between them?
- 5mo ago
- asdfasgasdgasdg 5mo agoWell it’s just the S&P. Other big indices may include it eg the Russell 3000. But it’s not quite as big of a deal as it seems because the market cap on which they scale is the float not the whole value of the company.
- zugi 5mo agoThanks for pointing this out! It seems obvious in retrospect, but the fact that SpaceX will be "valued" at $1.75 trillion after the IPO is irrelevant when only $75 billion worth of its stock will be publicly traded. $75 billion in float-adjusted market cap puts it around 180-190th in the S&P 500. So sure, it will likely get in there eventually, but there's no rush to bend the rules to get it in right away.
- tananaev 5mo agoWait until you hear about float multiple Nasdaq is doing.
- renegade-otter 4mo agoSpoiler alert - it's 5X for this.
- jgalt212 5mo agoSame here. I was so upset about the prospect of my index funds / retirement savings being force fed 100X revenues investments in large size that I emailed my Representative and both Senators. And to add to the irony, I used ChatGPT to help me write these letters.
- carlosjobim 5mo agoThen move your savings into some other vehicle instead.
- thinkthatover 5mo agoIf only! Many people have limited options for investing based on their employer's allowed plans that match 401k contributions
- otterley 5mo agoThey’re usually mutual funds managed by a brokerage or a company like Vanguard. Those funds often will have different management strategies than S&P 500.
- lokar 5mo agoIf it's not in a tax sheltered account that can generate a large tax bill.
- sahildeepreel 5mo agoRussel 1000 will include it in 5 days. Nasdaq in 15 days.
- cmiles74 5mo agoIt reads like greed and corruption to me.
- codegeek 5mo agoAgreed. S&P 500 needs to be seriously gatekeeped. We need safer boring companies in there thatbhave been peoven over a long period of time. Nothing against these companies but they are not proven and ready for S&P 500.
- dehrmann 5mo agoWhat you're describing is closer to the DJIA.
- jstummbillig 5mo agoLet's say Alphabet shifts further to ~become a 100% AI company in the same way that Anthropic and OpenAI are. Should they be removed from the index? If not, why not?
- thiisguy 5mo agoThe logic isn’t the same. We’ve had plenty of history to judge Alphabet’s financials. It’s less about AI and more about allowing the market to appropriately price the stock after seeing their filings for a period of time.
- jstummbillig 5mo agoThe financials will be very different when you start doing something entirely different, with all your might.
- fouc 4mo agoI think it would be reasonable to consider moving a company making large changes like that into some kind of probationary state, and automatically adjust the weights it has in the index as a result.
- simonh 4mo agoThis is true, and it's why index trackers exist, in order to diversify risk across the market so an investor is not excessively exposed to that happening for particular stocks. The market then re-prices that stock. As an index fund investor you are outsourcing your discretion to other market participants. However the market hasn't priced these new stocks at all, the existence of index trackers is being exploited to force prices on enough buyers to make the prices stick. This is the wrong way around. It's market manipulation. It's using the behaviour of index funds to influence prices, decoupling those prices to at least some extent from the discretion of market participants. Let the market price the stock, then the index trackers can buy in, this is exactly why these rules exist, and why it's a travesty that the NASDAQ is waiving them.
- alsetmusic 5mo agoWhen we interviewed a financial planner in 2024, I specifically asked for her take on AI companies. It was a trick question. If she was bullish, we'd have walked. She had a good answer about investing in companies that are established and have stakes in AI companies, such as Microsoft. 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.
- PaulDavisThe1st 5mo agoProblem is, most of the other indices have not done what S&P chose for the S&P 500. So if you have money in a NASDAQ, Russell, or FTSE index, you're going to end up with money in SpaceX. Even the S&P Global Index seems likely to include it. The whole thing is disgusting and the financial sector should be collectively ashamed of themselves.
- juanani 4mo ago[dead]
- tick_tock_tick 5mo agoI mean as a passive investor this stuff should terrify you. You're learning that your "passive" is actually quite active. It's why people suggest VTI over VOO/SPY for "true" passive. If you want to be active then keep your positions but just know and accept the active label.
- l23k4 4mo ago> I want the indices to follow the same passive strategy they always have Okay? But the debate has been specifically about getting rid of new rules introduced in recent decades as they're incompatible with the purpose of the indices in the current situation.
- root-parent 4mo ago"Your 401K Is Their Exit Strategy" - https://news.ycombinator.com/item?id=48433705 https://news.ycombinator.com/item?id=48433705