“After the hype, SpaceX investors return to the numbers” was the headline of this column a week ago. That return, it turns out, was brief. After diving post-earnings, SpaceX shares promptly surged almost 40 per cent.
It’s the market’s prerogative to change its mind, and in this case it said: actually, never mind the numbers.
What’s changed? Why was SpaceX valued at $1.4 trillion on August 1st, and almost $2 trillion a week later? What fundamental changes drove this repricing?
Traders of the stock might be tempted to reply: oh, please. The more prosaic explanation is that SpaceX had been heavily sold, shares were oversold and much-feared insider selling failed to materialise.
RM Block
A lock-up period preventing early investors and employees from selling had just expired, opening the door to a wave of potential selling. It didn’t happen, “investors” breathed a sigh of relief and shares took off.
Technicals and sentiment tend to get downplayed in media explanations of market movements. It’s nice to think prices move because investors have carefully reassessed the fundamental value of a company. Sometimes they do, but markets are also markets: supply and demand, fear and greed, positioning and momentum matter.
Nobel economist Robert Shiller recognised this in a famous 1981 paper, arguing that stock prices moved far more than changes in underlying fundamentals could explain.
SpaceX is providing a particularly spectacular modern example. A $135 per share IPO, a quick two-day surge to $225, a subsequent halving that brought it below $105, and a 40 per cent rally in a matter of days – all without anything like a commensurate change in the underlying business.
And this isn’t some speculative small-cap stock. SpaceX is now a roughly $2 trillion company. One might have thought that, at $2 trillion, the numbers would matter. Alas, not just yet.
