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SpaceX Boosts Market Sentiment For Tech
The Nasdaq has tailwinds this week thanks to SpaceX's historic IPO and the deal to reopen the Strait of Hormuz, with some companies seeing even stronger gains amid renewed risk appetite.
What's Moving the Market
- Friday's record SpaceX IPO boosts market sentiment, aided by news of a deal in the Middle East, set to send tech stocks higher on Monday.
- After the IPO, attention now turns to a potential merger between SpaceX and Tesla.
- The general rise in tech and space stocks, such as Rocket Lab, helps ease concerns about liquidity or investor interest in the sector.
- Several risks ahead this week could hurt sentiment, particularly for high-valuation stocks.
SpaceX Supports Tech, Rocketry
Elon Musk's newest foray into capital markets is notable for many reasons, not just because SpaceX had the largest IPO in history, creating the world's first trillionaire and over 4,000 new millionaires in its wake. The strong interest in the stock helped support the broader market, as traders took it as a signal of solid appetite for tech, boosting the Nasdaq as a whole. The IPO was oversubscribed by a factor of 4, which helped the stock price jump 19% on its first day of trading on Friday, pushing the company's valuation to over $2.0 trillion. It also received a record $118 million in retail trading on its first day, after offering an unusually large percentage (30%) of its shares to retail buyers. The company's successful liftoff was at least initially celebrated by traders who hope the share price will see further upside. However, analysts are divided, given the company's high valuations and its continued net losses. Others point to the expectation that it will be included in the Nasdaq in the next couple of weeks, which could push its price higher as ETFs and index funds are forced to buy a stock that clearly remains in demand.
Tech stocks in general were supported, but rocket-based stocks also saw gains as investors sought to capitalise on the sentiment. US-based SpaceX competitor Rocket Lab (RKLB) saw gains on Friday amid broader gains across the space sector. The company has over $2.2 billion in backlog and will join the Nasdaq before SpaceX. There had been concern that the massive $75 billion capital draw from Musk's company would hurt the share prices of adjacent firms, but Rocket Lab's share price performance showed the opposite. Even Tesla shares rose in the aftermath of the SpaceX IPO, suggesting ample liquidity and sector-wide interest that could propel further growth.
More Gains, But Caveats Ahead
The improved sentiment in the tech sector from Friday is getting an additional boost after both the US and Iran announced they have reached a deal for a 60-day ceasefire. Although both sides have given different accounts of what they agreed to, and the official signing won't take place until Friday, news of the deal is supporting markets. The odds of a Fed hike this year are declining as investors hope that reopening the Strait of Hormuz by the weekend will lower energy prices. Traders will be watching SpaceX's performance in the coming days to see whether the hype can be sustained. Now, there is rampant speculation about whether Musk will merge Tesla with SpaceX, even as he claims the company will have over $1 trillion in revenue by 2030. That speculation could support market sentiment but could also leave traders worried amid uncertainty. This week also includes the first FOMC rate decision under new Fed Chair Kevin Warsh, and there is always the possibility that the Iran deal could fall through before it is signed on Friday. Those events could reverse the recent optimism in tech and the space sector.
Nasdaq Rally Facing Potential Double Top
Nasdaq’s bounce off the lower VWAP just above the 28K handle has nearly fully reversed the losses seen post-NFP, which brings into focus the record high at 30760 and the upper VWAP at 31K. If the potential resistance holds, a double top could form, which would allow a move to 28400 following the break below 30K and the middle VWAP at 29690. But if prices extend above the peak, it could pave the way for 31500, the next major psychological resistance.
Source: SpreadEx | US Tech 100, Daily Chart
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