While it is Friday morning and the countdown is over.
Wall Street is set to uncork the largest public debut in financial history as Elon Musk's SpaceX officially begins trading today under ticker symbol SPC.
It does come at a choppy time for the broader markets.
Red hot producer price data showing inflation surging at its fastest monthly pace since 2022, sparked by the energy shock in the Middle East.
Now weeks of surging chip stocks as well as record highs have suddenly given way to.
Some of the most violent market swings of the year over the past five sessions, the Nasdaq swinging an average of 2.1%, more than double its historical average of just 1%, and these massive moves rattling investors as well as sparking fears that the AI rally that carried stocks to record heights might finally be coming to an end.
Well joining us on this historic day on this Friday morning is Sonu Varghese, Chief Macro Strategist at Carson Group.
So good morning and happy Friday to you.
So first.
And foremost, all eyes are on the SpaceX IPO.
So with a $1.8 trillion valuation, this is 91 times the sales plus they are burning through plenty of cash and operating losses.
But when we're looking at historical IPO data, are investors actually buying the future here, or do you think this could potentially be a value trap?
First of all, thank you for having me, Remy, especially like you said on this historic day.
Uh, it could be a 1.85, you know, $1.9 trillion dollar market cap stock, even maybe higher than that, uh, by the end of the day.
But that gets to, you know, data we've looked at since 1981, 1981 to 102, uh, Professor Jay Ritter over at the University of Florida has looked at all these different IPOs.
He's excluded things like SAS and all of that.
And what's interesting, Remi, is that The mean or average first day pop for all these IPOs is about 19%.
So this is the first day closing price relative to the offer price.
In this case for SpaceX, the offer price is about $135 thereabouts.
And it tells you that interestingly companies structurally underprice IPOs when they come to market, which is why you get this big first day pop.
Now, the historical data certainly is skewed a little bit by 1999 to 2000, where you had a 65% 1st day pop on average.
But even if you look from 2001 to 2025.
The average first day pop is 19%, but then it gets interesting from the first day, say you buy at the closing price and you hold it for about 3 years.
The 3 year return from that first day price is about 19% on average cumulative, but that underperforms the market by about 21%.
So it's just something to think about.
To your point about, you know, price to sales and, you know, profitability, things like that, usually the smaller companies have a larger pop, but lag in terms of longer term returns.
The more relatively unprofitable companies also have a larger first day pop, but tend to lag over the long term.
Yes, and so when we are talking about historic, we know that SpaceX as a company and even this public listing itself is unique.
So with SpaceX lifting off today and giants such as OpenAI as well as Anthropic right behind it, we could see a tidal wave set to hit the tape.
So when it comes to liquidity, what are the implications here for the broader market?
A few things here.
Now, one thing is, you know, obviously, we'll see where, how the IPO goes today.
I think if it's successful, uh, there's even more incentive to your point, uh, for anthropic and open AI to come out sooner rather than later.
They've already filed their S-1s and things like that.
So they are coming.
It's in the pipeline.
But one thing that's interesting, if you look at, you know, uh, the MAG 7, for example, the largest market cap stocks in the index.
And over the last couple of weeks, month to date, several of these have struggled.
You look at now, granted, they've all come out of a big, strong run since March 30th for generally for technology stocks.
Google is down 5% month to date.
Meta is down about 10% month to date.
Microsoft is down 13% Rey month to date.
Amazon's down 11%.
So it's almost like people want to get into the SpaceX story.
And some of that has the money has to come from somewhere.
Yes, there's a lot of cash on the sidelines and things like that.
But that's short duration cash.
People want to leave it where it is, but they may be selling some of the other, you know, mag 7 high market cap stocks.
But at the same time, the market has momentum.
You look at the S&P 500 Momentum index month to date, it's actually outperforming the S&P 500.
It's about flat month to date, despite going down over the first week, 10 days.
It's now crawled back.
It's up over 25% year to date.
So there's momentum in this market too.
And of course while I have you here, so I do want to ask you about labor market as well as inflation figures because we did get that many jobs report which show off farm payrolls topping expectations.
But when it comes to the labor market as well as how artificial intelligence is affecting the labor market at a time where we have sticky inflation, give us your key takeaways from all of these key data points and the implications for Kevin.
Look, uh, the labor market, especially from what we saw in the May payroll report, it's solid.
Pretty much across the board, the numbers are all good.
Over the last three months, the average number of jobs gained per month is about 188,000.
That's well, well above expectations.
Uh, the best indicator for the labor market is probably the unemployment rate.
That's near a historical low of 4.3%.
The Labor market is doing fine.
And at the same time, you have elevated inflation.
We got inflation numbers this week.
CPI is hot.
Of course, CPI came in on the softer side a little bit, but, you know, you have things like housing, disinflation pulling that lower.
Then we got a really hot PPI number.
So you combine PPI and CPI and you get, it's a lot of acronyms, I know, but you get the PCE index, of course, looking at the consumption expenditures Index, which is what the Fed tracks, that's looking to run really hot.
Its core PCE is set to come in for May at 3.5% year over year.
That is the hardest pace since October.
Of 2023, I think Mr.
Walsh pretty much has a big problem on his hands.
He's going to come in thinking he wants to cut interest rates, but I don't think he's going to get any purchase from his fellow members of the FOMC.
So we are probably going to see rates stay where they are, but with the labor market improving, with inflation rising, it's already elevated.
I think that means policy is getting looser, and I think that's actually good for the stock market for the time being.
Yes, and there are a lot of moving parts here and with the ECB hiking rates this week, there are a lot of implications for rate differentials as we move forward.
But there's also the G7 summit that is coming up, and all eyes will be on any commentary, of course, that comes out of it, as well as any interim deal between the US and Iran and what this means for the Strait of Hormuz.
But when it comes to All this economic data that we have been getting recently, whether we're talking about wages as well as inflation, there are some key points within all of those data releases that may be concerning to Americans.
So for the average American consumer who is dealing with rising gas prices as well as borrowing rates not coming down, what would you say to them and what can we expect heading into the second half of 2026?
We've been in the camp since the start of the year that we are in a period of inflationary growth, and I think that continues.
Now, inflationary growth is good for the stock market because when you think about inflation, what is inflation, on one side, yes, it's higher prices for consumers and even companies for intermediate inputs, things like that, but on the other side, It also means expanding revenues and margins, profit margins for a lot of companies.
And in this case we're even seeing, just to take an example, inflation related to AI bottlenecks, memory chip prices rising, computer software prices rising, all of that.
But on the other hand, you see all the tech companies do well, why their margins are doing well, and going up one person's or one company's margin increase is another person's inflation.
And I think that's the story right now.
It's uh we're in a period of inflationary growth, that's good for the stock market, not so good for the bond market. a lot affecting the economy right now as well as the broader market.
So appreciate you weighing in on this historical day for the SpaceX IPO.
I look forward to welcoming you to the New York Stock Exchange before the end of this month.
So have a great weekend.
Thank you.
