Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / Why Inverse ETFs Surge When the Nasdaq Falls
Transcript
- Lucas: The Nasdaq is down more than three percent in the last five days. The S&P 500 is off about one point six. But the Dow and the Russell 2000 are basically flat, up a few tenths. That's not a broad selloff. That's a tech-specific air pocket. Luna: And we're seeing something interesting in the ETF flow data. Inverse and leveraged ETFs that bet against the Nasdaq are seeing massive volume spikes. Lucas: Right. The ProShares UltraPro Short QQQ — ticker s q q q, which is a three-times inverse Nasdaq-100 ETF — has seen its average daily volume nearly triple over the past week. That's not just hedge fund activity. That's retail and institutional traders piling into a bet that tech has further to fall. Luna: So is this a rotation or a genuine risk-off signal? Because the bond market isn't screaming panic. The ten-year yield is at four point four percent, the two-year at four point zero nine. The curve is still positively sloped, about thirty-one basis points. Lucas: That's the key tension. When the Nasdaq drops three percent in a week and the VIX goes from around seventeen to eighteen point four, you'd expect the Treasury market to show some flight to safety flows. But yields are barely moving. The ten-year actually ticked down a single basis point. That's not a panic bid. Luna: So what's driving the divergence? Is it just tech earnings concerns or something bigger? Lucas: I think it's a combination. You've got SpaceX being fast-tracked into the Nasdaq-100 — that's going to force massive ETF rebalancing, which creates some mechanical selling pressure on existing components. But more structurally, there's a growing sense that the AI trade that powered the first half of the year is getting crowded. When something goes up that fast, any negative catalyst can trigger a sharp pullback. Luna: And we just saw the Minneapolis Fed president Neel Kashkari say he expects a rate hike this year. That's a hawkish surprise for a market that had priced in cuts. Lucas: Exactly. Kashkari's comment on Friday — that he sees a hike in 2026 — directly contradicts the market's expectation of a cut. The two-year yield initially jumped, but then settled back. That tells me the bond market isn't fully buying his hawkishness. But for tech stocks, which are more sensitive to discount rates, that kind of talk is poison. Luna: So if the Dow and small caps are holding up, does that mean investors are rotating into value and cyclicals? Lucas: That seems to be the narrative. The Russell 2000 is actually up on the week, and the Dow is slightly positive. Energy, financials, and even some consumer staples are getting bid. It looks like a classic growth to value rotation. But the question is whether it's just temporary or the start of a regime change. Luna: And the VVIX — the volatility of the VIX — is actually down almost three percent over the same period. That's interesting. If investors were really scared about tail risk, you'd expect the VVIX to spike. Lucas: Right. The VVIX is at eighty-nine, which is relatively low. That suggests the options market is not pricing in a crash. It sees this as a contained selloff, not a systemic event. So the people buying inverse ETFs might be making a tactical bet, not a catastrophic hedge. Luna: Still, when you see triple-normal volume in a three-times inverse ETF, it's worth paying attention. That kind of flow can become self-reinforcing if it pushes the underlying stocks lower. Lucas: Absolutely. Leveraged ETFs can amplify moves. If the selloff continues, these inverse funds will attract more inflows, which could accelerate the decline in tech. But if tech stabilizes, those same funds can get liquidated quickly, creating a vicious cycle in the opposite direction. Luna: So what's the takeaway for a long-term investor? Do you buy the dip or wait? Lucas: I think you have to distinguish between the Nasdaq's headline number and the underlying fundamentals. The Nasdaq is at twenty-five thousand three hundred — that's still up double digits from a year ago. A three percent pullback is minor in the grand scheme. But if you're a dip buyer, you want to see some sign that the selling is exhausting. I'd watch the VIX. If it pushes above twenty and stays there, that's a different environment. Luna: And keep an eye on the yield curve. If the ten-year starts dropping significantly — say below four point two — that would signal a flight to safety that could spill over into equities. Lucas: Right now, the curve is telling us the economy is still growing. Real GDP growth annualized at two point one percent, nominal GDP above thirty-one trillion. That's not recession territory. So a tech selloff driven by rotation and rate hike fears might be a buying opportunity for patient investors who aren't in the most overvalued names. Luna: One thing I keep coming back to — if our money conversations have helped you think about a decision differently, we hope you find value in that. We keep the show ad-free by design, and listener support is what makes that sustainable. Lucas: Yeah, it's a deliberate choice. If you want to support that approach, the link is buy me a coffee dot com slash fexingo. No pressure, just an option for those who find the show useful. Luna: Exactly. And it helps us keep doing deep dives like this one, without worrying about ad slots. Lucas: So back to the market — the other thing I'm watching is the bond market outside the U.S. There's a headline from this weekend suggesting investors may want to prioritize bond markets outside the U.S. If global yields start moving in different directions, that could affect the dollar and, by extension, multinational tech earnings. Luna: That's a good point. A weaker dollar would be a tailwind for U.S. exporters, which includes a lot of the big tech names. So maybe the selloff is short-term noise. Lucas: Could be. But for now, the flows are clear. Money is leaving the Nasdaq and going into inverse ETFs, small caps, and Dow stocks. That's a trade, not a thesis. The thesis will only become clear when we see whether the VIX stays elevated and whether the yield curve inverts again. Luna: And whether Kashkari's hawkishness is an outlier or the start of a Fed pivot back to tightening. Lucas: Exactly. For next week, I'll be watching the VIX at nineteen and the ten-year at four point four. If those levels break, the whole conversation changes.