Morgan Stanley: US stock market is not afraid of the super IPO wave "indigestion", and the 60/40 rule is exiting the historical stage.

Chief US Stock Strategist at Morgan Stanley Mike Wilson stated that despite the continuous influx of new trades to investors and a tight pace, the market's ability to digest this wave of stock and bond issuances indicates that its underlying financial condition remains healthy. Wilson expressed confidence that the market has enough capital to deal with the recent surge in IPO activity. He described the current environment as another "harvest year," showing strong investor demand although not comparable to the peak in 2021. During an interview, Wilson pointed out some astonishing liquidity data to explain the market's resilience. He noted, "Companies distribute around $1.7 trillion annually through buybacks or dividends." He added that continuous inflows of funds from retail investors, pension recipients, and other asset owners further support the market's depth. Wilson acknowledged that concentrating multiple trades in a single quarter may temporarily cause "indigestion" in the market. However, he insisted that "there is ample liquidity in the market" to deal with these short-term disruptions as the substantial funds returned to shareholders provide a buffer for new issuances. The strategist also highlighted a broader trend reshaping investor behavior: the traditional stock-bond 60/40 portfolio allocation is undergoing a "structural shift." With the bond market undergoing a four-year bear market, Wilson stated that investors are reallocating funds to asset classes that offer better protection against inflation. Wilson explained, "Ordinary asset owners are very smart. They have realized that the biggest risk in the future is inflation." He pointed out that returns from maturing bonds are increasingly flowing into stocks, gold, silver, and other tangible assets rather than returning to fixed-income products. Wilson believes this shift towards inflation-resistant assets is boosting the market's ability to absorb new issuances. He stated that investors are moving towards an asset allocation that looks more like 60/20/20 or even 70/30, reflecting a fundamental reassessment of portfolio construction in an inflationary environment. Super IPO "Three Giants" in Place According to compiled data, SpaceX's estimated market value is about $1.77 trillion, with plans to raise $750 billion. While the IPO fundraising scale for Anthropic has not been finalized, the market widely predicts that it may raise over $600 billion. If the future issuance scale of OpenAI is included, the total fundraising amount for the three companies is likely to exceed $2 trillion, injecting an additional total market value close to $4 trillion into the market. Faced with such a huge supply, the stability of the US stock market's ability to absorb it has become the most pressing concern for traders. In the short term, passive funds allocated through index funds may provide some support. Interactive Brokers' Chief Strategist Steve Sosnick pointed out that the key lies in the speed at which stocks are included in major indices. Once newly listed companies are rapidly included in benchmarks like the S&P 500 or Russell 3000, ETFs tracking these indices will have to make large purchases, creating buying pressure in the initial stage. However, analysts point out that even with the current estimated high market values, SpaceX's initial weight in the S&P 500 may be only around 0.1%, and even if the Nasdaq 100 applies the highest three-times weight rule for float shares, the initial weight is only about 0.5%. The actual support from passive funds in the short term may be relatively limited. The market is truly concerned about the pressure from unlocking shares after the IPO lock-up period. Taking SpaceX as an example, its freely tradable share ratio is expected to be only about 4% in the early stages of listing. However, according to its disclosed unlocking schedule, insiders can sell 20% of their holdings after the first quarterly report, with an additional 10% if the share price rises by over 30% from the issue price. Approximately half of Musk's own holdings cannot be sold within 366 days after listing, with the remaining restrictions being lifted earlier. When these large quantities of shares flow into the secondary market in batches, it may continue to impact the supply-demand dynamics. Historical data also warns. Research by Jay Ritter, a professor at the University of Florida, shows that from 1980 to 2024, the average return of US listed companies in the three years after an IPO is 20 percentage points lower than the market average, and companies with valuations above 40 times revenue perform even worse, lagging by as much as 58 percentage points. SpaceX's valuation approaching $1.8 trillion already exceeds its revenue by 90 times. Such a high valuation multiple means that even if short-term hype drives up stock prices, the pressure for long-term valuation regression will be very heavy.