Space stocks crashed back to Earth on Friday after S&P Global made it clear it won't bend the rules to let Elon Musk's SpaceX into the S&P 500 anytime soon. That killed the dream of a quick index inclusion that would have forced billions of dollars in passive fund inflows into the rocket company.

Shares of AST SpaceMobile (ASTS), Rocket Lab (RKLB), and Redwire (RDW) all moved lower, while Sidus Space (SIDU) also declined. The selloff hit space-focused funds too, with the ARK Space Exploration & Innovation ETF (ARKX) and the Procure Space ETF (UFO) trading lower as sentiment across the sector soured.

The trigger was a Reuters report that S&P Global would make no changes to the eligibility requirements for its major indexes. That means SpaceX can't get a fast pass into the S&P 500 after its planned initial public offering, even though it's expected to be worth roughly $1.75 trillion — making it the largest IPO in history.

S&P said exceptions to profitability, seasoning, and investable float requirements shouldn't be granted just because a company is huge. So SpaceX remains ineligible, disappointing investors who had hoped index funds and ETFs tracking the benchmark would be forced to buy massive amounts of SpaceX stock shortly after the offering.

To add insult to injury, valuation concerns are piling up. Morningstar analyst Nicolas Owens recently assigned a weighted base-case valuation of about $780 billion for SpaceX — roughly 56% below the $1.77 trillion valuation implied by the company's fixed IPO price of $135 per share. Owens argued investors may find more attractive entry points after the stock starts trading.

Market participants have often treated companies like Rocket Lab, AST SpaceMobile, and Intuitive Machines (LUNR) as publicly traded proxies for SpaceX. With the index catalyst gone, those proxy plays are getting hammered as investors reassess space-sector positions ahead of the SpaceX IPO. The sector's recent run-up had already drawn scrutiny as valuations climbed even while many companies continue to face profitability and execution challenges.

Price Action: Shares of Sidus Space fell 6.9% to $4.38, while Redwire dropped 12.1% to $18.83. Rocket Lab declined 6.2% to $112.48, Intuitive Machines slid 11.0% to $29.92, and AST SpaceMobile lost 10.4% to $96.16 as of publication Friday, according to market data.