"The 'Roaring Era' returns! BofA's Hartnett warns: SpaceX super IPO will ignite an epic bubble."

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SpaceX is about to go public in the US stock market, pushing the entire market to the brink of historic euphoria—which is precisely why one of Wall Street’s most influential strategists is sounding the alarm.

In his latest report, Bank of America strategist Michael Hartnett warns that once SpaceX and OpenAI—so-called "super IPOs"—come to market, the weighting of tech stocks in benchmark equity indices will easily surpass 48%, exceeding the market concentration during all major historical bubbles, including the "Roaring Twenties," the "Nifty Fifty" of the 1970s, the Japanese bubble of the 1980s, and the Dotcom bubble of the 1990s.

Earlier, Bank of America’s latest fund manager survey showed that the scale of investors increasing their US equity allocations hit a record high this month, with bullish sentiment in the market nearing an extreme, triggering a sell signal.

On the market level, the anticipation of SpaceX’s listing has already sparked a collective frenzy among space-themed stocks. Bank of America's basket of core space track stocks has risen 42% so far this year, outperforming both the S&P 500 and the Nasdaq 100 indices. Analysts compare this phenomenon to when Tesla drove the entire electric vehicle sector to surge, but there are also warnings that once the hype fades, it remains to be seen whether smaller companies can support their valuations based on their own fundamentals.

Concentration Alert: Tech Weight Nearing Bubble Red Line

The weighting of tech stocks in the S&P 500 has already exceeded 44%. Hartnett points out that once SpaceX and OpenAI complete their IPOs, combined with the scale of existing AI giants, market concentration will "easily surpass" the 48% peak seen in all well-known historical bubbles.

“Strong price action, retail frenzy, subdued volatility… the bubble vibes are strong,” Hartnett wrote in the report. "Adding super IPOs to the AI giant cohort means market concentration will easily surpass the roughly 48% levels of the Roaring Twenties, the Nifty Fifty, Japan in the 80s, TMT in the 90s, and other bubble periods."

This concentration problem is especially challenging for asset allocators. Due to risk management constraints, many institutional investors cannot fully track the ultra-high weightings in the benchmark index, and the pressure of passive underweighting will continue to increase. Furthermore, an index tilted heavily toward tech may mask the structural weaknesses in sectors more closely tied to the real economy, such as consumer and financial sectors.

Historical Lessons: Super IPOs Are Not Always Market Catalysts

After reviewing major IPOs in history, Hartnett notes that listings like Saudi Aramco and Meta (formerly Facebook) had limited impact on the main market, while issuances at "market tops" like Visa and AIA were actually followed by market declines within nine to twelve months after their IPOs.

This historical pattern provides an important reference for today’s optimism. Hartnett states that surging bond yields have been the common trigger in every boom and bubble’s end.

He also offers two indicators to watch: if the biotech ETF from State Street falls to $120, it implies bond yields are still climbing; if the retail ETF rises to $85, it suggests the impact from yields is temporarily easing.

Hartnett further points out that current market consensus has reached "maximum bullishness," with both positions and earnings expectations at high levels, and with added pressure from rising yields, investors should consider taking some profits. “But before these historic IPOs land, no one will cut long positions,” he added, forecasting that only when CPI hits 4% to 5% in coming months will there be genuine policy tightening.

Space Sector Frenzy: The SpaceX Effect Replicates the Tesla Moment

SpaceX officially filed for its IPO this Wednesday, and based on the valuation of comparable public companies, its market capitalization ranges from $864 billion to $2.25 trillion. In comparison, Tesla and Meta currently each have market caps below $1.6 trillion.

This expectation has already caused a strong resonance in space-related stocks.

Bank of America’s space basket is up 42% so far this year, with both the Procure Space ETF and the Tema Space Innovators ETF posting double-digit returns.

Wedbush analyst Dan Ives called SpaceX’s IPO the space industry’s "golden moment," drawing an analogy to Tesla defining the electric vehicle sector: “It’s not just about one company—just as Tesla defined electric cars, this launch has the potential to redefine the entire space sector.”

Tech investor Brett Hurt said that SpaceX going public is “a tremendous win for the space economy, which will lift the valuations and financing capabilities of other companies.”

After the Hype: Can Small and Mid-sized Companies Support Their Own Valuations?

However, the flip side of the Tesla effect also warrants caution.

Amid the EV boom, Rivian’s share price has plunged 92% from its November 2021 peak, and XPeng’s US ADRs have fallen 78% from their November 2020 highs. Tesla itself has managed to join the "Magnificent Seven" through continued expansion, but its sector followers have seen vastly different fates.

Eric Diton, President and Managing Director of The Wealth Alliance, said bluntly that after SpaceX goes public, small- and mid-cap space firms will face the challenge of demonstrating their worth independently: “The market will scrutinize companies one by one. My first question is—how do you compete with Musk and SpaceX? Do you have a competitive advantage?”

Columbia Law School professor Eric Talley pointed out that investors’ fervor for all Musk-linked assets is hard to curb, but the fact that Musk is also a top executive at multiple companies—stretching his focus—cannot be ignored.

Andrew Chanin, co-founder and CEO of ProcureAM, holds a comparatively optimistic view, arguing that the space sector is not necessarily a "winner-takes-all" landscape. The market is broad enough to accommodate multiple successful companies, though some failures are inevitable.

Risk Warning and DisclaimerThe market carries risks, and investment needs to be prudent. This article does not constitute individual investment advice, nor does it take into account the particular investment objectives, financial situation, or needs of any specific user. Users should consider if any opinions, views, or conclusions in this article are suitable for their circumstances. Investment based on this article is at your own risk. ```