Did SpaceX's massive IPO drain liquidity from the US stock market? Calculations suggest it was a false alarm, with actual index fund buying amounting to only $30 billion.

According to Beating's monitoring, the US stock market is facing a severe liquidity crisis amid looming IPOs from mega-cap companies like SpaceX, Anthropic, and OpenAI, all valued at over $4 trillion. In response to these concerns, Rob Arnott, chairman of RAFI Indexes, wrote that actual index rules will act as a crucial "firewall," preventing the market from collapsing due to concentrated buying by passive funds. Arnott pointed out in an extreme scenario stress test that if SpaceX IPOs at a $2 trillion valuation with only 4% ($80 billion) of its shares publicly traded, and if the index committee immediately includes SpaceX by market capitalization weighting, the $18 trillion funds directly tracking major US stock indices would be forced to buy over $500 billion worth of shares, far exceeding the actual available supply of $80 billion. Such extreme concentration could theoretically drive stock prices to infinity, potentially paralyzing the US stock market. However, the actual rules rendered this potential collapse a false alarm. The float-adjusted mechanism used by major indices caps the buying power of index funds at around $30 billion. While a $30 billion withdrawal would still trigger significant market volatility, it wouldn't cause a stock market crash. Arnault warns that the real pain point of mega-IPOs isn't a temporary liquidity shock, but rather the distorted valuation system created by passive index funds. Since 2012, S&P 500 constituents have outperformed mid-cap (Next 500) stocks by a staggering margin, widening the valuation premium to nearly 80%. Yet, fundamentally, the cash flow growth of S&P 500 giants has lagged behind second-tier stocks by 3% over the past 25 years. This means the boom in large-cap stocks is almost entirely driven by a bubble, not by fundamentals. If passive funds are forced to buy at high prices to allocate to SpaceX, this disjointed valuation bubble will only become more irrecoverable. Those companies that remain outside the index are the true long-term winners with solid fundamentals.