Here’s a bit of a revelation from our own portfolio strategy: a significant 25% of our small-cap allocation sits in two space economy pioneers, Rocket Lab USA (RKLB) and AST SpaceMobile (ASTS), both of which have recently earned a spot in the Russell 1000 Index. This milestone signals not just a validation of their growth trajectory but also a broader market recognition of the space sector’s burgeoning potential, with ample runway still ahead. As we sit at the cusp of what could be a defining decade for space-related equities, the inclusion of these firms in a large-cap benchmark underscores a pivotal shift, one that passive funds and institutional players can no longer ignore. This is not merely a feather in the cap for our positioning; it’s a moment to unpack the implications for the wider market and reassess the risk-reward dynamics of an industry still in its infancy.
The Russell 1000 Inclusion: A Catalyst for Visibility
The elevation of Rocket Lab and AST SpaceMobile to the Russell 1000 is more than a symbolic pat on the back. It’s a structural tailwind. As of the latest index rebalancing, reported by Bloomberg on 27 June 2025, ASTS in particular has seen a triple-digit rally this month alone, with its inclusion likely to draw fresh inflows from passive funds tracking the index. Rocket Lab, meanwhile, continues to cement its reputation as a leader in small satellite launches, with its Electron rocket programme maintaining a steady cadence of missions. This dual recognition amplifies liquidity and investor awareness, often a precursor to further institutional accumulation. Yet, for every upside, there’s a flip side: increased visibility can invite volatility as short-term traders pile in, potentially inflating valuations beyond near-term fundamentals.
Why Space Stocks Are No Longer a Niche Bet
Let’s zoom out. The space economy, projected by some estimates to balloon to a trillion-dollar market by 2040, is morphing from a speculative fringe into a tangible growth engine. Rocket Lab’s focus on cost-effective launch services positions it as a critical enabler of the small-sat boom, catering to everyone from government agencies to private constellations. AST SpaceMobile, on the other hand, is carving a unique niche with its ambition to deliver space-based cellular broadband directly to consumer devices, a proposition that could disrupt terrestrial telecoms if executed at scale. Both companies are riding secular trends: the proliferation of low-earth-orbit infrastructure and the insatiable demand for connectivity. But what’s unspoken in the hype is the asymmetry of risk. Execution hiccups, regulatory hurdles, or a broader risk-off environment could easily dent sentiment, especially for firms yet to turn consistent profits.
Second-Order Effects: The Passive Flow and Sentiment Shift
Digging deeper, the Russell 1000 inclusion isn’t just about the companies themselves; it’s about the ripple effects. Passive funds, which often rebalance portfolios to mirror index changes, are likely to scoop up shares of RKLB and ASTS in the coming weeks, providing a mechanical bid under their prices. This dynamic, often overlooked, can create a self-reinforcing loop of momentum, at least in the short term. Sentiment on social platforms also reflects this shift, with growing chatter among retail investors about the space sector as a high-beta play for the next bull cycle. Yet, as any seasoned observer knows, crowded trades breed fragility. If macroeconomic headwinds, such as tighter monetary policy or geopolitical shocks, sour risk appetite, these stocks could face outsized drawdowns relative to broader indices.
Historical Parallels and Forward-Looking Risks
Historically, nascent industries often follow a predictable arc: euphoria, overvaluation, correction, and eventual maturation. Think dot-com in the late 1990s or clean energy a decade ago. Space stocks, with their lofty growth narratives, are treading a similar path. While we’re nowhere near peak mania, the rapid price appreciation in ASTS, for instance, raises questions about sustainability. On the flip side, Rocket Lab’s more measured ascent and focus on recurring revenue via launch contracts offer a degree of downside protection. Still, both remain vulnerable to broader small-cap underperformance, especially if the Russell 2000 continues to lag larger indices amid economic uncertainty. A prudent approach might involve monitoring insider selling or institutional ownership changes for early signals of cooling enthusiasm.
Positioning for the Long Runway
So, what’s the play here? For those with a stomach for volatility, maintaining exposure to RKLB and ASTS offers a bet on secular growth, provided one can weather the inevitable bumps. Trimming positions on strength, particularly post-index inflow surges, could lock in gains while retaining core holdings for the long haul. Alternatively, options structures like covered calls could harvest premium while capping upside risk. More broadly, keep an eye on sector rotation: if high-beta tech and growth names fall out of favour, space stocks could bear the brunt alongside other speculative corners of the market. Diversifying within the theme, perhaps via established players like Lockheed Martin or even aerospace-adjacent ETFs, might balance the portfolio’s risk profile.
As a final speculative thought, consider this hypothesis: what if the space economy’s true inflection point arrives not from launch providers or broadband innovators, but from an unforeseen geopolitical catalyst, say, a renewed space race driven by national security imperatives? Such a scenario could turbocharge funding and contracts for firms like Rocket Lab overnight, while leaving pure-play connectivity bets like ASTS on the sidelines. It’s a wildcard worth pondering as we navigate this still-uncharted frontier.
