Market Update: What Investors Need to Know About the SpaceX IPO
One of the most anticipated events in investing may be just around the corner: the initial public offering of SpaceX shares. Until now, SpaceX has been a private company owned mostly by Elon Musk and other private investors, but even a small portion of the company coming to market could make this one of the largest IPOs in history.
There is good reason for the excitement. SpaceX has revolutionized space launch and satellite communication, and its work could have important implications for artificial intelligence, including the possibility of future data centers in space where power and cooling capacity are far less constrained. Shortly on its heels, we may also see OpenAI and Anthropic move toward public markets. These are incredible developments, but they raise an important question: Can a great company be a disappointing investment? History would suggest the answer is yes.
Newly public companies have often underperformed the broader market after their shares begin trading, and the reasons are fairly predictable. IPOs tend to arrive when optimism is highest and valuations have already been pushed up by years of venture capital funding and media attention. Investors compete for a limited number of shares, which drives prices higher, especially for well-publicized offerings like this one. And once insider lockup periods expire, additional supply hitting the market can put downward pressure on prices.
None of this means every IPO will be a disappointing investment. There have been plenty of examples of exciting companies that became very successful long-term investments. Meta and Tesla come to mind. But the common thread is fairly simple: even really great businesses can be poor investments if investors pay too much.
Successful investing over time is usually not about picking the most exciting company of the moment. It is about having a disciplined process that guides you through both very exciting, euphoric periods and more uncertain ones. At Baker Boyer, we want to participate in the growth that innovative companies like these can provide. But as we look ahead to these IPOs, the key takeaway I want investors to keep in mind is this: enthusiasm can be justified, but price still matters.
At Baker Boyer, we will own shares of SpaceX, OpenAI, and Anthropic when they become public in our portfolios, and as long-term investors, we look forward to enjoying the growth that comes with that. But history reminds us that great companies and great investments are not always the same thing, and that is something we have to keep in mind as we use a disciplined process for adding those positions.
Monthly Market Summary
- The S&P 500 Index gained +5.3% in May and set multiple new all-time highs. Technology led all S&P 500 sectors with a +16.0% return, followed by Consumer Discretionary (+2.6%) and Health Care (+2.5%). However, eight of eleven sectors traded lower, led by Energy (-5.6%), Utilities (-5.1%), and Consumer Staples (-3.2%).
- Bonds traded higher despite a mid-month surge in Treasury yields. The U.S. Bond Aggregate returned +0.3% but underperformed corporate bonds as credit spreads tightened. Investment-grade and high-yield corporates returned +0.7% and +0.5%, respectively, with both outperforming the broader Bond Aggregate.
- International stock traded higher in May but were mixed. Emerging markets gained +9.7% and outperformed the S&P 500, while developed markets' +3.2% return lagged both U.S stocks and emerging markets.
Stocks Set New Highs as Geopolitical Tensions Ease
May was a strong month for equities, with most major indexes setting fresh all-time highs. The S&P 500 and tech-heavy Nasdaq 100 set new highs each week, with the Dow Jones and Russell 2000 also setting new highs throughout the month. Even the equal-weight S&P 500, which gives each company the same weight regardless of market cap, set a new high. While the equal-weighted index's move signals broadening participation, leadership was narrow within the index. The technology sector gained +16% and was the only sector to outperform the S&P 500 Index. Eight of eleven S&P 500 sectors traded lower, and ten of eleven sectors underperformed the index. The concentration showed up in factor indexes as well, with large-cap growth returning +7.2% versus +2.9% for large-cap value. The performance gap highlights a notable trend this year: AI and tech stocks continue to outperform more traditional, cyclical companies.
Bonds also traded higher, with the U.S. Aggregate Bond Index returning +0.3% and corporate bonds outperforming as credit spreads tightened further. The bond market’s gains came despite a surge in interest rates mid-month. The 30-year Treasury yield spiked above 5%, reaching levels last seen in 2007, and the 10-year Treasury set a new 52-week high. The trigger was back-to-back hot inflation reports for consumer and producer prices, with the Middle East conflict and elevated oil prices creating broader price pressures. Following the inflation reports, the market now places a greater than 50% probability of a Fed rate hike at the December 2026 meeting, a significant shift from earlier in the year when the market assumed a rate-cutting path. With Treasury yields at multi-decade highs and oil prices leading to inflation concerns, the bond market is shifting toward interest rates remaining higher for longer.
This Year’s Two Defining Themes: Geopolitics & Artificial Intelligence
Two themes have defined markets this year. The first is geopolitics. Trade and tariff uncertainty earlier in the year has given way to military conflict in the Middle East, which has created an oil supply disruption. The Strait of Hormuz, which carries roughly 20% of global oil supply, has been effectively closed since the conflict began in late February, causing global oil inventories to shrink. Oil prices remain elevated after briefly hitting four-year highs earlier this year but have been relatively contained given the extent of the oil supply disruption. There was partial relief in May as U.S.-Iran negotiations progressed and the market began pricing in a potential reopening of the Strait. West Texas Intermediate crude ended the month below $90 per barrel, down -16.5%. However, the path forward remains uncertain, as a successful deal would take months to restore shipping traffic to pre-conflict levels. What happens next in the Middle East will impact energy prices, the inflation outlook, and the broader financial market.
The second theme is the artificial intelligence buildout. Companies have committed hundreds of billions to build the AI industry's physical backbone, including data centers, computer chips, and power generation. Forecasted 2026 capital spending across the leading tech companies now exceeds $600 billion, with most of the capex directed at AI infrastructure. The spending is driving economic growth and starting to show up in corporate earnings, with AI-linked revenue growth becoming a significant driver of overall S&P 500 profit growth. The investment is also creating drastic changes. Shortages across parts of the technology supply chains are creating bottlenecks, and companies are experiencing rapid growth as they repurpose products and services for the age of AI. The pace of spending and technological change explains much of the performance gap between the tech sector and more traditional areas of the stock market.
