Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why the NASDAQ Is Surging Past 26,000 While the Dow Lags Behind
Transcript
- Lucas: The NASDAQ Composite just closed above 26,600 for the first time—up 3% in the last five days alone. Meanwhile, the Dow is barely cracking 50,400, a 2.2% gain over the same stretch. That gap is getting hard to ignore. Luna: It's a story of two markets right now. Growth is sprinting, value is jogging. And the data we've seen this week only reinforces that. Lucas: Exactly. The Russell 2000 is up over 6% in the past week—small caps catching a bid—but even that surge hasn't closed the gap with growth. The IWF growth ETF is up 2.1%, the Vanguard Growth Index 2.2%, but the real fireworks are in names like Cloudflare, Datadog, CrowdStrike. Luna: CrowdStrike alone jumped nearly 9% in five days. That's not a broad-market move, that's sector-specific momentum. Lucas: And it's tied directly to what we're hearing from the cloud infrastructure space. The latest numbers from the big players show capex accelerating, not slowing. If our money conversations have helped you think about where to put your portfolio, you might appreciate that a couple of dollars a month is genuinely what keeps these episodes ad-free—buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: It's a small way to ensure we can keep digging into these divergences without any sponsor influence. Lucas: Right. So back to the gap—the NASDAQ's premium over the Dow is now roughly 10 percentage points year-to-date. That's a rotation that started in late 2023 and has only intensified. Luna: What's driving it this time? Is it just AI hype, or is there a fundamental earnings story? Lucas: It's fundamentally earnings. Look at the cloud hyperscalers—Amazon Web Services, Microsoft Azure, Google Cloud. Their Q1 revenue growth collectively accelerated to over 20% year-over-year, and the forward guidance was even stronger. That's feeding directly into the infrastructure layer: NVIDIA, but also the networking and security names. Luna: And the market is rewarding that with higher multiples. CrowdStrike trades at over 80 times forward earnings. That's a growth premium, not a value play. Lucas: Meanwhile, the Dow's composition is heavy on industrials, financials, and consumer staples—sectors that are more sensitive to the macro slowdown fears. Even with GDP growth ticking up to 2.0% annualized, the market seems to be saying that the old economy isn't where the acceleration is. Luna: But the Russell 2000's jump is interesting. Small caps are generally more cyclical, more tied to domestic growth. If they're rallying 6% in a week, maybe the market is starting to believe the soft landing is real. Lucas: That's the bull case. The Fed held rates steady at 3.65%—no change since March—and the market is interpreting that as a green light. Real GDP growth is up, nominal GDP is over $31.8 trillion. The macro backdrop is actually pretty benign for risk assets. Luna: But the divergence between the NASDAQ and the Dow suggests that not all risk assets are created equal. If you're overweight value, you're underperforming. Lucas: That's the key question for this episode: is this divergence sustainable? Because historically, when growth outperforms by this much, either value catches up or the rally runs out of steam. Luna: I remember 2021—growth dominated, then 2022 was a bloodbath for high-multiple stocks. Are we setting up for a repeat? Lucas: The difference is earnings. In 2021, a lot of growth was story stocks with no profits. Today, the leaders—NVIDIA, CrowdStrike, Cloudflare—are generating real cash flow. Cloudflare's revenue grew 30% last quarter and they're profitable on an EBITDA basis. Luna: That's a fundamental shift. The market is paying up for quality growth, not just speculation. Lucas: And that's why the divergence may persist. The Dow's components are seeing slower earnings growth. The average S&P 500 company is expected to grow earnings about 8% this year—but the top tech names are growing 20 to 30%. Luna: So the gap is rational. It's not just sentiment. Lucas: Exactly. But there's a risk: if the macro data softens, those high-multiple stocks are the first to get hit. We already saw a mini-rotation out of growth in April when CPI came in hot. That lasted about two weeks. Luna: But then the Fed didn't hike, and growth came roaring back. So maybe the market is testing the Fed's resolve. Lucas: I think it's more about sector-specific catalysts. The cloud infrastructure buildout is a multi-year theme. We're seeing it in the data center REITs, in the semiconductor equipment names, even in the utilities that power the data centers. Luna: It's a full ecosystem. And the NASDAQ is the proxy for that ecosystem. Lucas: Right. So if you're a long-term investor, the question is whether to chase the leaders or look for value laggards that could catch up. Luna: What's your take? Historically, when the NASDAQ outperforms the Dow by 10 points or more, does value eventually mean-revert? Lucas: Looking back at 1998–2000, the NASDAQ outperformed massively—then the dot-com bust crushed growth. But that was a bubble. In 2017, growth led by a similar margin, and value caught up gradually over the next two years without a crash. Luna: So it depends on the fundamentals underpinning the growth. Lucas: Exactly. Right now, the fundamentals are solid. Earnings are real. The macro is stable. The Fed is on hold. So I'm leaning toward the divergence continuing, but expect periodic pullbacks. Luna: Which means if you're underweight growth, you might want to add some exposure, but not go all-in. Lucas: That's the balanced approach. Use the dips to add to quality growth names. And if you're holding value, be patient—the rotation may come, but it might not be this quarter. Luna: One last thought: the Russell 2000's 6% jump this week could be a signal that the rally is broadening. If small caps start outperforming consistently, that's usually a healthy sign for the bull market. Lucas: It is. Broadening breadth is exactly what bull markets need to sustain themselves. So keep an eye on the Russell versus the NASDAQ in the weeks ahead. Luna: If small caps can hold these gains while growth stays strong, that's the sweet spot. Lucas: And if the Dow starts catching up, we may have a proper broad-market rally. But for now, the NASDAQ is the story.