22 Jun 22nd June 2026

Markets Year to Date

The most exciting event of the year is now over. SpaceX is now trading on the Nasdaq under code SPCX.

The IPO price was set at $135 and vastly oversubscribed. Retail investors got scaled back by about 3 times, meaning each person got about a third of the amount they are wanting.

I haven’t yet spoken to someone who bought in the IPO so if you did, I would be keen to hear how much of your allocation you actually received.

Options are already trading on this stock. A deep out of the money sold Call seems very tempting. The one I was looking at last week was 50% higher than the stock for a one month expiry and generating about 3% return on risk.

You could do similar on the downside with a Put.

The stock opened at $150, got as high at $176.50 and closed at $161

In the following days it even hit $225. At that price, the company was worth more than Microsoft.

Greg made this statement in our office

“It is a meme stock. A punt, and cannot be taken seriously”

Couldn’t have been said any better.

The underwriters did the perfect job. A successful listing, in fact bang on the average first day return, but not too high.

Where it goes from here is anyone’s guess. But I can tell you I will not be buying it.

Imagine you where a trillionaire. Like Musk is now. You have the choice to own one of these two companies completely. SpaceX or Microsoft?

As we aren’t trillionaires we can’t own the company completely, but that is how we should assess decisions when buying stocks.

Talking of Musk, I saw a lot of hate mail about him around this listing. All of which was completely unfair. Love him or hate him, you have to admire what he has done:

• Invented the electric car which sparked an entire industry which reduces green house gases (supposedly)
• Paid the highest ever amount of tax in the US. $11billion in 2021. That fact makes me feel better about my tax return.
• Advanced affordable solar power and large-scale battery storage.
• Made reusable rockets – something NASA could not achieve
• Created satellite internet so remote communities could access the internet and then gave it free to Ukrainians when they were invaded.
• Is helping people with neurological disorders through a better standard of living with NeuroLink. One of his patients is now able to play chess on the computer by controlling moves through his thoughts alone. Imagine combining this with new robotics and the future is bright for disadvantaged people.
• Is working on boring tunnels to reduce congestion on roads.

Yes he is now, in theory, a trillionaire. But he does not own a boat, or a plane. He ploughs all his profits back into his companies. He does not take much for himself.

He has certain beliefs he thinks will help humanity and he isn’t waiting for someone else to do it. He is doing it all himself. We could all learn from his attitude.

Back to SpaceX. In their prospectus, they stated 85% of their future possible profits will come from Ai.Or, rather, XAi.

Recall Twitter was a public company. Musk then bought it outright and took it private, with some controversary around it. He renamed Twitter, X, and using the data inside it built an Ai model called Grok.

That is what the prospectus refers to as XAi.

They are saying that 85% of their future profits will come from XAi. But XAi is only used by about 3% of Ai users. OpenAi and Claude and Google’s Ai get about 30% each.

See where this is going? 85% of future revenue for SpaceX comes from a product that only 3% of the market uses and one that is vastly behind the leaders.

They will never catch up and never achieve the numbers in the prospectus. Which means the stock is what we call:

A dream for dreamers

A little aside here. Musk buys Twitter for 10 times trailing 12 month revenue. (it did not make a profit so we can’t use a PE). He then drops Twitter inside SpaceX and exchanges his Twitter shares for SpaceX shares. SpaceX trades about 100 times trailing 12 month revenue. That is 10 times what he paid for Twitter.

Effectively he has just created himself a 10 bagger. Or a 1,000% return on his investment in Twitter. $44billion to $440 billion.

Clever use of current accounting policies.

Moving on to things that really matter.

The new Fed chair held his first meeting and press conference. And it did not go down well.

Warsh delivered a speech that was a lot more hawkish than expected. The market now expects two rate rises this year.

What concerned me more was his change of approach.

He would not have sounded hawkish if he did not believe the US economy could withstand rate rises. I agree. Employment is strong, company profits are strong. It can easily absorb a rate rise or two. That is not the problem.

The problem is he thinks the current Fed policy of communicating often and clearly with public markets is not a good thing. He wants to cut the communication down. His press conference was way shorter than Powell for instance, so covered less questions.

Under Powell, markets knew what was coming because of the frequent Fed communications.

When this reduces under Warsh, markets will not know what to expect. This will lead to more volatility and sudden moves. Fed announcement days suddenly become a big event again.

Stock investors will not like it because you will see wild swings. Option traders will love the volatility.

Last topic this week is market valuation and where to from here.

Back in the 1970s, Eugene Fama rose to fame for his ground breaking – Efficient Market Hypothesis.

What this says is, stock prices today reflect all known information about that stock today.

This is a bit of an oversimplification because investor confidence has a major impact too. But let’s run with this idea for now.

What that statement says is, if things play out exactly as we expect based on today’s information, then the stock price is correct and should not change.

Therefore, the only thing that changes a stock price is surprise. Or, to put it another way, something happening that we do not know today.

At the beginning of the year, the S&P500 was expected to earn $310 per share in 2026 and $357 per share n 2027.

Then Q1 earnings were announced and they came in higher than expected (a surprise). That caused analysts to increase their earnings expectations to $339 this year and $392 next year.

That increase was +9% this year and +10% for next year.

Analysts saw a +9 or 10% surprise. The S&P500 is up +9.6% so far this year.

See the correlation?

Stock prices are not random (well, maybe they are in the short-term)

Which means, stock prices might be higher than the start of the year, but stocks are valued at the same level.

This opens the door for two things to push prices higher from here.

1. More earnings surprises in Q2. We will find out in about a month. More upside surprises will lead to the same reaction as we saw for Q1
2. Investors to gain confidence and value stocks on more of a multiple.

Both are entirely possible.

The Ai story is powerful. The economy is strong. I see no reason stocks cannot add another +10% in the second half of the year.

This last bit is an edit and sorry for the length of the note today. But I wanted to talk about the Iran war too.

The question I have been asking is – why did Israel and America suddenly attack Iran?

They told us it was because Iran was getting close to a nuclear weapon. I don’t buy it.

I think it was just about money.

Remember back in 2003 the US invaded Iraq. They told us the reason was Iraq had weapons of mass destruction. But they never found any.

Following the war, about $213billion was spent on rebuilding Iraq. Most of which came from Iraq Oil sales.

Guess which companies got the contracts to do the work?

Surprise, surprise, mostly US.

Haliburton (HAL) got awarded big contracts to put out oil well fires without even a tender process.

Fluor (FLR) got contracts for engineering and infrastrure.

Kellog, Brown and Root (KBR) won an open ended contract to run and build US military bases wordwide.

The US department of defence just asked congress for $80billion to cover the costs of the Iran war. The US needs to replenish all the drones and missiles they used.

Lockheed Martin (LMT) is the biggest defence contractor. They make advanced missiles, aeroplanes and space systems

RTX (used to be called Raytheon) (RTX) specialise in advanced air defence systems.

Northrup Grumman (NOC) are the leader in autonomous systems and radar technology.

I think the Iran war was just an exercise in boosting the economy.

We have heard an agreement has been made. It isn’t very different to the agreement that is already in place. Except there is $300billion committed to rebuild Iran. It is anticipated to be funded by a coalition of Gulf states rather than the US.

Which companies do you think will win the majority of the rebuild contracts this time?

Might be time to go out and buy some/all of the list above.

Edit of the Edit – treaty is on hold because Israel bombed Lebanon. But this is just temporary. Peace is on the way because the money needs to start flowing. Money decides everything

Warning

Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.