Jun 25, 2026
There’s a theory circulating on Wall Street that a 40% market crash is casting a long shadow over the initial public offering (IPO) pipeline, and that the SpaceX and OpenAI IPOs are largely responsible.
The crash call comes from Mark Hulbert, a long-time analyst who penned a column on the topic for Marketwatch on June 22, citing research from Harvard University economist Xavier Gabaix.
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“SpaceX’s massively successful IPO, along with the expected IPOs of artificial-intelligence giants OpenAI and Anthropic, make a severe bear market much more likely,” Hulbert noted. “And by severe, I mean a drop of almost 40%.”
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Driving that prediction is the notion, articulated by Gabaix, that massive IPOs could cause big investors to raid their piggy banks to snap up shares of popular new-issue stocks. In doing so, Hulbert said big market mavens steer tons of cash toward IPO standouts like SpaceX, either for future investment or for the IPO companies’ C-suites to cash in their shares.
“How bearish would it be if the money raised this year in mega-IPOs like SpaceX’s comes from investors selling other stocks and the companies investing in their future growth and/or their founders deciding to ‘take the money and run?” Hulbert asks.
Citing a 2023 University of Chicago study led by Gabaix, the research suggests that taking cash out of the market for big IPOs could drain billions from the stock market, hurtling it into a severe bear scenario within the next year.
Huge IPOs throw a bucket of cold water on the stock market
Other market trackers agree that gigantic new issues like SpaceX ($1.77 trillion valuation) and OpenAI (expected $1 trillion valuation) are a bank account drainer for other stocks.
“When a multi-billion-dollar company hits the public market, it doesn’t magically create new investing cash out of thin air,” Dan Ye, a stock market expert who teaches an “Investing in the Age of AI” course at Johns Hopkins University, told Moneywise. “The money to buy those fresh shares has to come from somewhere.”
In the real world, when a pension fund, a hedge fund, or an everyday investor decides to take a massive position in an OpenAI or a SpaceX IPO, they usually fund it by harvesting cash from their existing winners. “They sell off chunks of their highly liquid, blue-chip holdings — the Apples, Microsofts, and broad S&P 500 index funds of the world,” Ye noted.
Once that cash is handed over to the newly public company to fund massive compute clusters or rocket research and development, it’s effectively siphoned out of the secondary trading ecosystem. “If we see a rapid-fire succession of these massive offerings, we are easily looking at an aggregate capital raise north of $200 billion,” Ye added. “That is a massive, structural drain on everyday market liquidity.”
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SpaceX and OpenAI may not be big enough to trigger a crash
Other market experts aren’t as concerned, because of the massive size of the overall stock market relative to the valuations of the latest big IPOs.
“While SpaceX’s IPO was the largest in history — raising a total of $85.7 billion — some people overstate its impact, citing that the IPO price valued the firm at $1.77 trillion,” Robert R. Johnson, founder and CEO at New York City-based Economic Index Associates, told Moneywise, adding the raise is “a small fraction of the total market capitalization of SpaceX.”
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Johnson noted that, at the beginning of 2026, the total market cap of the US stock market was $79.4 trillion.
“While the IPO was huge, it is a minute fraction of the total US market cap,” Johnson said. “But, as with all things Elon Musk, its overall impact is magnified.”
Additionally, global stock markets have come a long way since the days when an outsized IPO or two could capsize the market, even temporarily.
Take the University of Chicago study, which claimed that for every dollar invested in the U.S. stock market, the aggregate market capitalization of the market increases by roughly $5. It follows, then, that the reverse might be true: Pulling one dollar out of the market could result in a disproportionate drop.
That means a $200-billion capital drain using that 5-to-1 multiplier would result in a staggering $1-trillion drop in total stock market value — at least on paper.
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“To be fair, this multiplier isn’t a flawless crystal ball,” Ye said. “Today’s stock market has a few modern counter-forces that didn’t exist in past decades.”
For example, capital markets are highly globalized, adding a needed counterweight to imbalanced markets that may be susceptible to substantial IPO impactors. “If a massive chunk of the money funding an OpenAI or SpaceX debut comes from international sovereign wealth funds, or is drawn out of non-equity asset classes like corporate bonds, the domestic stock market avoids the direct hit,” Ye noted.
Institutional venture funds are also currently sitting on historic mountains of “dry powder” in the form of unspent cash. “If an IPO allows early insiders to cash out, that money might be rapidly recycled right back into other public equities, softening the blow,” Ye said.
Why investors need to be careful about massive IPOs
Even with global market buffers, history periodically issues a loud warning about periods of heavy IPO activity. “If you look back at 1929 or the peak of the dot-com bubble in 2000, massive waves of IPOs have consistently served as the ultimate canary in the coal mine, signaling the absolute top of a speculative cycle,” Ye said.
Keeping the University of Chicago analysis in mind, Main Street investors should be cognizant of the risks of overinvesting in times of IPO largesse, yet be pragmatic, too.
“This state of IPO activity will likely last at least for the next couple of months, but in the broader perspective, it’s best not to read too much into it,” Eugenia Mykuliak, founder and executive director of B2PRIME Group, a global financial services provider, told Moneywise.
Mykuliak notes that the stock market is still in the initial adjustment stage as it assesses powerhouse IPOs like SpaceX, which will eventually fade, and that the market will return to assessing fundamentals over temporary factors. “Whether SpaceX can successfully execute its growth strategy and justify the valuations in the long-run is the more important question,” he stated.
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A former Wall Street bond trader, Brian O'Connell is the author of two best-selling books: “The 401k Millionaire” and “CNBC’s Creating Wealth.” His work is featured on national finance and business platforms like TheStreet.com, CBS News, CNN, The Wall Street Journal and Forbes.
