The SpaceX IPO Could Trigger the Biggest Portfolio Reshuffling in Years. Are You Ready?

The din around SpaceX is deafening, transcending Wall Street's news platforms and spilling into the news that Main Street reads. That's partly related to the massive scale of the deal, with the initial public offering (IPO) expected to raise $75 billion. At the IPO price of $135 per share, SpaceX estimates its market cap would be nearly $1.8 trillion. This is not an ordinary IPO.

Notably, the IPO is oversubscribed, which means more people want to buy the stock than there are shares available. There could be a notable first-day pop in the price, and the hype around the IPO is likely to be huge. But the story gets even more interesting when you examine what indexes are doing.

Index mutual funds and index-based ETFs are huge investors on Wall Street. While passively following an index isn't exactly an exciting investment approach, there are notable implications for investors when the constituents of widely followed indexes change. It actually happens all the time because indexes have to adjust to market changes.

For example, a spin-off situation might require the spun-off stock to be sold. A bankruptcy or delisting would require a replacement stock. And changes in market cap could make a stock ineligible for a size-based index. Those are just some reasons why an index would have to make adjustments. Those adjustments can lead to significant buying and/or selling activity in a stock.

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The SpaceX IPO is upending the usual flow of things as indexes aim to add the new stock to their indexes as quickly as possible. That's partly driven by the company's size and partly by the hype around it.

For example, the Nasdaq-100 index rules have changed so that SpaceX will be added fairly quickly. Russell U.S. Equity Indexes and the FTSE Global Equity Indexes have also created a fast track for SpaceX, allowing it to be added to various indexes. This will create additional demand for the shares and a base of investors who have no choice but to hold them.

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The most important index of all, the S&P 500 (^GSPC +1.75%), isn't changing its rules, so SpaceX won't be eligible for inclusion out of the gate. However, the rules governing other S&P indexes may be changed to allow the newly public company to be added.

Even if you don't personally plan to participate in the SpaceX IPO event, you may find that you are indirectly joining in because of the fairly quick changes that will happen to index funds. That includes stock sales to make room for SpaceX and any rebalancing to accommodate its rapid inclusion. There could be a period of market volatility that opens up investment opportunities in stocks other than SpaceX.

If you have had a stock you've wanted to buy and it goes on sale following the SpaceX frenzy, you should probably be ready to buy it. That's just a good long-term investment tactic (and assumes you have a stock wish list at the ready). That said, the changes that have been made to the indexes for SpaceX could end up leading to even more changes down the line, as they would likely allow for Anthropic and OpenAI, which are looking to hold gigantic IPOs of their own, to be quickly included in indexes, as well. At the end of the day, the biggest portfolio reshuffling in years could be an opportunity for long-term investors to buy stocks beyond SpaceX, Anthropic, and OpenAI.