This imminent SpaceX development could make the stock even more volatile

By William Gavin

SpaceX is set to be added to the Russell 1000 after Friday's close, and it could join other major indexes in the days ahead

SpaceX is set to gain a presence in more stock indexes.

SpaceX is set to be added to a major index after the market closes on Friday, which will force some passive funds to buy billions of dollars' worth of the stock.

The Russell 1000 will add SpaceX (SPCX) to its ranks as part of FTSE Russell's rebalancing, scheduled for Friday. While it normally would have taken much longer for SpaceX, which had its initial public offering on June 12, to become eligible for inclusion, the index provider had earlier adjusted its rules to allow select newly public companies to be fast-tracked after as few as five days of trading.

The development could make SpaceX shares even more volatile. They are slightly down in early trading on Friday.

The Russell index won't be the first to include SpaceX. The Center for Securities Research has already added the company to its indexes, including the U.S. Total Market Index, in a move that took effect on Monday.

SpaceX will also become eligible for inclusion on MSCI's indexes on Friday. The provider's rules allow for large newly public companies to be added after 10 trading days.

Nasdaq recently approved rules allowing for SpaceX to join the Nasdaq-100 after 15 trading days. That sets it up for entry in early July.

Inclusion in those indexes will pack SpaceX exposure into many Americans' retirement plans. Trillions of dollars in fund assets are linked to those four index providers' overall offerings, according to Morningstar.

But SpaceX won't have a major impact on retirement plans to start with, experts note. That's because of the company's incredibly small free float, or the amount of shares eligible for public trading.

Many indexes use float-adjusted market capitalization when weighting securities. That means the smaller the float, the smaller the weighting of a single stock in the index. SpaceX sold less than 5% of its stock in its initial public offering, a "puny" amount that limits its immediate size in index funds, according to Morningstar analyst Zachary Evens.

That's why SpaceX has a 0.15% weighting in the CRSP U.S. Total Market Index, which makes it the index's 106th largest security by weight. As of June 18, the company had a float-adjusted market capitalization of $109.2 billion. The index's largest holding is Nvidia (NVDA), which has a 6.43% weighting on the index, with 96% of shares available for trading.

However, the free float - and thus SpaceX's impact on some indexes - will change as lock-up periods expire. That won't happen all at once, though, because SpaceX decided to use a complicated release schedule to avoid a massive selloff. This is a strategy also employed by Cerebras Systems (CBRS) and others, although SpaceX's timeline is much more complex.

"As the free float increases with more insider sales, there's going to also be increased demand from the index funds," Nikolai Roussanov, a professor of finance at the University of Pennsylvania, told MarketWatch. "And those two may [offset] each other. It's not exactly clear."

Evens said in a recent report that it's unlikely that SpaceX's float ratio will exceed 30% after 180 days, at which point a large chunk of insider stock will be completely released. After 366 days, when the remainder of shares held by SpaceX CEO Elon Musk and other insiders get unlocked, that float is still unlikely to grow above 50%, he said.

A 60% float is the "realistic ceiling" for SpaceX, thanks to how much of both the company's class A and class B shares is owned by Musk, according to Evens. That will limit the impact SpaceX will have on passive index funds.

SpaceX insiders also have an incentive not to sell. Many of them are either longtime investors or employees, and Musk is known to encourage a strong sense of loyalty. They may also have greater optimism than others do that SpaceX can achieve its goals, which include sending rockets to Mars and developing into an artificial-intelligence powerhouse.

"Your average insider is more faithful to the company than a standard insider would be," CFRA analyst Keith Snyder told MarketWatch, noting that Musk has "this aura around him" that has captivated both employees and investors of Tesla (TSLA) and SpaceX.

"I think a lot of people are going to hold on because they believe in the long-term story of the company," he added.

It's worth noting that the S&P 500 won't be able to add SpaceX to its ranks for at least a year. S&P Dow Jones Indices rejected a proposal that would have let the company join the index much faster. Funds that track a few other S&P indexes, such as the S&P Completion Index and U.S. Total Market, have already added SpaceX to their holdings.

-William Gavin

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

06-26-26 1031ET