Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Momentum Investing Survives Rate Hikes
Transcript
- Lucas: The S&P five hundred just hit seven thousand seven hundred thirty six, but what really catches my eye is the divergence. The Dow is slightly red on the week while the Nasdaq is up one point eight percent. We are seeing a classic momentum play where past winners are continuing to outperform, regardless of the broader economic headwinds. Luna: Right, and look at the volume in names like CrowdStrike. It is up more than eleven percent in just five days. That is not just noise; that is capital flowing aggressively into specific sectors. Lucas: Exactly. And if you are listening, or driving, or just trying to make sense of your portfolio today, know that this show is kept alive by listeners like you. If our money conversations have helped you think about a decision differently, even a couple of dollars a month makes a genuine difference. You can support us directly at buy me a coffee dot com slash fexingo — that's F. E. X. I. N. G. O. It keeps the research sharp and ad-free. Luna: Thanks for the support. It really does help us dig deeper into these numbers rather than skimming the surface. Lucas: So let’s get back to it. The core question is: why does momentum survive when the Fed Funds rate is sitting at three point eight eight percent? Historically, higher rates crush valuation multiples, especially for high-growth tech. But right now, we are seeing the opposite. The market seems to be ignoring the cost of capital in favor of pure revenue velocity. Luna: I would argue it is not ignoring the rate, but prioritizing resilience. Companies with strong recurring revenue models, like those in cybersecurity or cloud monitoring, are pricing in the higher rates as just another operating cost. Lucas: That is a fair point. Look at Datadog. It is up nearly eight percent this week. The logic here is that their software is embedded so deeply in enterprise workflows that cutting budgets doesn't mean cancelling contracts. It means they keep paying to maintain security and uptime. That stickiness creates a floor under the stock price. Luna: But isn't there a risk that once the novelty wears off, the valuation becomes too rich? We are talking about companies trading at premiums that usually require double-digit growth to justify. Lucas: It is a valid concern. However, the data shows that in this quarter, growth expectations have been met or exceeded more often than not. Real GDP growth is slowing to two point two percent, which suggests the economy is cooling. Yet, tech stocks are rallying. This implies that investors are rotating out of defensive plays and into high-beta growth assets, betting that ai driven efficiency gains will offset the slower macro economy. Luna: So you are saying the rally is being driven by a bet on productivity rather than overall economic expansion? Lucas: Precisely. It is a structural shift. We are seeing institutional money flow into ETFs like VUG, which tracks large-cap growth. It is up one point five percent this week. The narrative has shifted from 'rate sensitivity' to 'profitability visibility.' Investors want companies that can show them exactly where the next dollar of revenue is coming from. Luna: And CrowdStrike fits that bill perfectly because their threat intelligence is becoming a utility. You don't turn off your antivirus when the economy dips; you might even upgrade it. Lucas: Spot on. And that brings us to the mechanics of riding the wave. Many retail investors miss these rallies because they wait for a pullback that never comes, or they chase too late. The key is identifying the leading edge before it becomes obvious. Luna: How do you define the leading edge in today's market? Is it purely technical, or do fundamentals still dictate the entry point? Lucas: It is a hybrid approach. Technically, you look for relative strength against the broader index. Fundamentally, you look for margin expansion. If a company is growing revenue while expanding margins, it signals operational excellence. That is what we are seeing with the top performers this week. Luna: So you are looking for the intersection of price action and operational health. That sounds like a much safer way to enter a trade than just following headlines. Lucas: Absolutely. Headlines can be misleading. A stock might pop on a rumor, but if the underlying business hasn't changed, the move is unsustainable. We saw that with some of the smaller meme stocks earlier this year. This rally is different because it is backed by actual cash flow. Luna: Which brings up the question of sustainability. Can this momentum last through the end of the year, especially with the Fed likely to hold rates steady for now? Lucas: If the Fed holds steady, we remove one layer of uncertainty. But the bigger variable is whether corporate earnings can keep pace with these valuations. If Q3 earnings reports disappoint, even slightly, the momentum could reverse quickly. Volatility is always lurking beneath the surface. Luna: Right, and with the Nasdaq up so sharply, any shock could lead to a rapid unwinding of positions. It feels like a tightrope walk. Lucas: It is. But that is why position sizing matters. You don't need to bet the farm on a momentum trade. A measured approach allows you to capture the upside while limiting downside risk. It is about managing exposure, not predicting the future. Luna: So, discipline over prediction. That is a lesson every investor needs to hear, especially in a bull market. Lucas: Exactly. And speaking of discipline, let's look at the broader market context. The Russell twenty hundred is also up one point four percent. This suggests that small caps are starting to participate in the rally, which is a healthy sign for breadth. Luna: I hadn't noticed the small cap participation yet. Does that change your view on the sustainability of the rally? Lucas: It adds credibility. A narrow rally led only by mega-cap tech is fragile. When smaller companies join in, it indicates a broader confidence in the economic outlook. It suggests that businesses at all levels are feeling optimistic about their prospects. Luna: That is encouraging. It makes me feel less anxious about the inflation data we've been seeing. If growth is picking up across the board, maybe the soft landing is still on track. Lucas: Maybe. But remember, optimism should be tempered with caution. The yield curve is still inverted in some segments, and consumer spending is showing signs of fatigue. We cannot ignore those warning signs just because the stock market is hitting new highs. Luna: So we balance the bullish momentum with a realistic assessment of the risks. It is a delicate dance. Lucas: Precisely. And that is what separates seasoned investors from the crowd. The crowd chases the hype; the seasoned investor manages the risk. It is a subtle but crucial distinction. Luna: Well said. It reminds me of how we discussed portfolio diversification earlier. Even in a momentum-driven market, having a diversified base is essential. Lucas: It is. Diversification protects you when the momentum shifts. And when will that happen? No one knows for sure. But being prepared is the best strategy you can employ. Luna: So, as we wrap up, what is the one takeaway for our listeners who want to capitalize on this trend without getting burned? Lucas: Focus on quality. Buy companies with strong fundamentals, clear paths to profitability, and resilient business models. Avoid the speculative froth. Stick to the leaders, but enter with discipline. Luna: Quality over quantity, and discipline over emotion. I think that is a message worth remembering. Lucas: Agreed. And as we watch the markets close out October, keep an eye on those earnings reports. They will tell us if this momentum is built on solid ground or sand. Luna: Let's hope for solid ground. Thanks for breaking this down, Lucas. Lucas: Anytime, Luna. Stay sharp, and keep asking the hard questions.