Why the brutal stock sell-off is a bullish sign for the SpaceX IPO

The stock market has stumbled recently, with brutal sell-offs hitting tech shares on Friday and again on Tuesday, but the losses might be a bullish signal for the upcoming SpaceX IPO.

Iran war worries and an uncertain outlook for interest rates have been the drivers of recent stock losses, with the market’s hottest trades battered in two of the last three sessions on Wall Street.

Another explanation, however, might be investors piling up cash to throw at SpaceX stock when it debuts later this week.

SpaceX will make its stock-market debut on Friday, following an IPO that’s expected to raise $75 billion and achieve a valuation of $1.75 trillion.

The IPO is set to be the largest in history, fueling some concerns about the impacts of pulling that much cash from the market.

Michael Monaghan, a portfolio manager at Founder ETFs, isn’t worried about a lack of liquidity in the market to absorb the IPO, and said that Tuesday’s sell-off may reflect the excitement around the mega-offering.

“I think the reason stocks are going down is that everyone is so focused on the SpaceX IPO and how to position it that they’re not doing work on other names,” he said, explaining that investors are selling tech and there are fewer bids to buy the stocks when all eyes are looking toward Thursday’s pricing.

“This whole setup is very good for first batch for the SpaceX IPO,” Monaghan said, adding that the IPO is “so high profile” that the institutional players backing it work to get shares in the hands of investor that will hold them for the long term.

Futurum CEO, Daniel Newman, wrote that Tuesday’s pull back amounted to “public market fund raising” ahead of SpaceX’s trading debut.

BCA Research chief strategist Noah Weisenberger warned that the mega IPOs like SpaceX could weigh on current AI winners. Tuesday’s market moves could embody this.

“While the supply-demand balance seems somewhat favorable to absorb the new shares, the bigger risk is within Tech, where new AI listings could reduce scarcity value and pull capital away from existing AI beneficiaries,” the strategist wrote.

Vanda Research flagged cash hoarding head of the SpaceX IPO as a reason for more tepid post-tax-season retail flows this year.

“One potential explanation is that some investors are raising liquidity ahead of the anticipated SpaceX IPO. If SpaceX, OpenAI & Anthropic are viewed as the ‘real deal,’ one might imagine that we could see further selling in recent favourites and proxy AI trades as some retail investors look to raise capital in advance of these big IPOs,” the firm said on Tuesday.