Welcome to Hoxton Wealth, the new home of Hoxton Capital
A Stalled Deal and a $1.7 Trillion Question
Hoxton Blog • A Stalled Deal and a $1.7 Trillion Question
Two questions dominated client conversations this week.
The first was about geopolitics: "The Iran talks have broken down. Should I be worried?"
The second was about markets: "SpaceX is going public. Should I buy it?"
On the surface, they seem completely unrelated. One concerns conflict in the Middle East. The other concerns the most anticipated stock market listing in years.
Yet both questions lead us to the same place.
When uncertainty rises or excitement builds, investors naturally feel compelled to act. History suggests that it is often precisely when it pays to pause, take a wider view, and focus on evidence rather than emotion.
This week, that wider view offers some useful perspective.
Markets Started Strong. Then Geopolitics Took Centre Stage
The week began with markets continuing their remarkable run.
The S&P 500 finished Monday just shy of 7,600, while the NASDAQ closed above 27,000 for the first time. Technology stocks led the advance, helped by Nvidia, which gained more than 6% after unveiling a new processor designed for personal computers.
The mood changed as the week progressed.
Reports emerged that Iranian negotiators had stopped communicating with Washington, while threats were made to close the Strait of Hormuz following Israeli strikes in Lebanon. Oil markets reacted immediately. US crude surged almost 6% in a single session, reaching around $93 per barrel, and investors quickly reassessed the risks.
Software stocks endured their weakest day for several months, and broader equity markets moved sideways as investors digested developments in Washington and the prospect of escalating tensions in the region.
Then came Friday's employment report.
The US economy added 172,000 jobs in May, comfortably ahead of expectations, while wage growth remained relatively subdued. From a long-term perspective, that combination is encouraging. A healthy labour market supports economic growth, while contained wage pressures help reduce inflation risks.
The short-term complication is that strong economic data gives central banks less urgency to reduce interest rates.
As a result, investors finished the week facing a familiar combination: geopolitical uncertainty, higher oil prices, volatile markets, and expectations that rate cuts may arrive later than previously hoped.
The obvious question is whether any of this should change your investment strategy.
The Chart That Answers the Worry Question
Whenever investors ask whether a geopolitical event should make them rethink their portfolio, there is one chart worth revisiting.
The chart shows the US stock market since 1950. Every period when the market traded below a previous high is shaded.
The first thing that stands out is just how much shading there is.
Market declines are not unusual interruptions to investing. They are an ordinary part of investing. Across the past 75 years, the market has spent a significant portion of its time below its previous peak.
The second thing that stands out is even more important.
Despite every correction, recession, oil shock, war, political crisis and pandemic, the long-term direction of the market has remained overwhelmingly upward.
The index has risen from below 20 to more than 7,500.
Every shaded period felt significant at the time. Every one came with convincing reasons why investors should reduce risk, move to cash or wait for greater clarity.
The investors who built meaningful wealth were not those who successfully avoided every period of uncertainty. Nobody can do that consistently. They were the investors who continued owning productive businesses through those periods and allowed compounding to do its work.
This week's market wobble is simply another small section of shading on a chart that stretches back three-quarters of a century.
The negotiations may stall. They may restart. The headlines may become more dramatic before they improve.
What matters most is whether any of that materially changes the earnings power of the businesses you own over the next decade.
For most investors, the answer is no.
The Biggest IPO in History
The second question of the week concerns a very different type of temptation.
SpaceX has filed to raise approximately $75 billion at a valuation of around $1.77 trillion, making it the largest stock market debut ever attempted. Trading is expected to begin on 12 June.
There is no question that it is an extraordinary business.
Its achievements in reusable rockets have transformed the economics of space travel. Starlink has become a global communications platform. The company also has significant ambitions in artificial intelligence and advanced technology.
The excitement is understandable.
The more important question is whether excitement alone makes something a good investment.
Before answering, it helps to look at history.
What Happened to Previous Mega-Listings?
The chart below shows the performance of the 10 largest US stock market debuts of the past 25 years during their first year as public companies.
The striking point is that every company on the list traded lower one year after listing.
That does not mean they were poor businesses.
Meta fell 31% during its first year as a public company and subsequently became one of the most successful investments of the past decade. Others never recovered in the same way.
The lesson is not about business quality. It is about valuation.
When a company becomes the most anticipated listing in the world, expectations tend to become extraordinarily high. Investors often pay tomorrow's success price today.
The challenge is that even exceptional businesses struggle to exceed perfection.
SpaceX may prove to be one of the great companies of this generation. It may justify every bit of enthusiasm currently surrounding it.
History simply suggests that being first through the door is not always the most rewarding strategy.
Great companies tend to remain great companies for many years. Investors rarely lose because they waited for the excitement to settle. More often, they lose because they allowed excitement to dictate the price they were willing to pay.
Different Questions. Same Lesson.
A stalled peace process creates the urge to sell.
The biggest IPO in history creates the urge to buy.
Both reactions come from the same place. They encourage investors to make decisions based on emotion rather than evidence.
The evidence tells us that market drawdowns are not a signal that investing has stopped working. They are part of the process.
The evidence also tells us that the most exciting opportunity in the room is often the one carrying the highest expectations and the richest valuation.
Successful long-term investing is rarely about reacting faster than everyone else.
More often, it is about staying patient when others become anxious, remaining disciplined when others become excited and allowing quality businesses, diversification and time to do what they have always done.
If you would like to discuss how current market events affect your own investment strategy, or review whether your portfolio remains aligned with your long-term goals, please contact our team at client.services@hoxtonwealth.com or via WhatsApp on +44 7384 100200. We would be pleased to help.
How Can We Help You?
If you would like to speak to one of our advisers, please get in touch today.
Contact Hoxton Wealth
We are available to discuss how Hoxton Wealth can help you achieve your financial goals. Together, we can help you build a brighter financial future.
