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HERE'S ONE WAY TO RESHUFFLE THE GICS SECTORS TO ACCOMMODATE SPACEX

Is SpaceX SPCX.O a Communication Services sector company? Maybe, given that its satellite internet company accounts for over half of its revenue. Or is the Industrials sector a better home for SpaceX within the Global Industry Classification Standard, alongside aerospace rivals such as Lockheed Martin LMT.N?

S&P Dow Jones Indices and MSCI will have to decide where in their classification system of sectors to place the potentially $2 trillion company, which also includes rocket ships, the X social media platform and xAI.

It matters because passively managed funds tracking those sectors will have to rebalance their holdings if SpaceX becomes an S&P 500 .SPX component, which is likely, given that S&P Dow Jones Indices is consulting investors about rule changes that would let SpaceX join the index despite being unprofitable.

While some investors expect SpaceX to be added to the Communication Services sector .SPLRCL, where it would sit alongside Alphabet GOOGL.O and Meta Platforms META.O, what if S&P Dow Jones Indices and MSCI use the upcoming listings of SpaceX, Anthropic and OpenAI to overhaul and modernize the entire sector structure?

"The last reshuffle of sectors was in September 2018, when Tech was 27 percent of the index and Facebook/Alphabet were reassigned to Communications. This history suggests S&P must be considering another sector reclassification right now," Datatrek wrote in an investor email last week.

Adding SpaceX to any sector but Communication Services or Technology .SPLRCT would give the company an outsized weight compared to the other companies in the same sector. But S&P Dow Jones Indices and MSCI could also create new sectors and combine existing sectors aimed at reducing the imbalances in sector sizes and making the system more useful to investors.

Here is one potential reshuffle that might make the GICS a better reflection of the modern U.S. stock market and 21st-century economy, while reducing the massive disparity in size between the largest and smallest sectors.

Sector	Built from
Technology / IT	Current IT — unchanged
Communication Services / Media	Current Communication Services, minus Alphabet, Meta, and SpaceX
Capital Markets	Financials + Real Estate merged
Financials - disappears	Merged into Capital Markets
Consumer Discretionary	Current Consumer Discretionary — unchanged
Digital Platforms	Alphabet + Meta carved from Communication Services
Health Care	Current Health Care — unchanged
Industrials	Current Industrials — unchanged
Energy & Power	Energy + Utilities merged
Consumer Staples	Current Consumer Staples — unchanged
Space & Infrastructure	SpaceX + satellite operators (new)
Energy - disappears	Merged into Energy & Power
Utilities - disappears	Merged into Energy & Power
Materials	Current Materials — unchanged
Real Estate - disappears	Merged into Capital Markets

And here is how those sectors might compare to the existing sector structure:

(Noel Randewich)

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