Large mutual funds and passive index funds are setting aside more cash and preparing to offload holdings in large-cap stocks as they brace for blockbuster IPOs from SpaceX and OpenAI.
Goldman Sachs' John Flood notes that passive funds may need to sell existing holdings to accommodate the new public companies. Historically, cash balances increased ahead of major IPOs.
New rules from Nasdaq 100 and S&P 500 will speed up the addition of newly listed megacap companies to benchmarks. SpaceX, targeting a $1.75 trillion valuation, could benefit. OpenAI and Anthropic also plan public listings soon, with valuations near $1 trillion.
Retail investors' cash reserves may further fuel demand. Entry into benchmarks boosts liquidity and institutional interest, though it doesn't fully protect against insider selling.
