Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why Growth Stocks Are Getting Crushed in a Bull Market
Transcript
- Lucas: So the S&P 500 is at 7,384 — down about 2.8% on the week — and the Dow is basically flat, off just 0.4%. Sound like a healthy bull market, right? But then you look at the NASDAQ, down 5.1%, and the ARKK Innovation ETF, down 8.3%. Growth stocks are getting absolutely crushed. Luna: It's a weird divergence. The Dow is within spitting distance of 51,000, and yet some of the biggest names in tech are in freefall. What's driving it? Lucas: The main catalyst is the hot jobs report we got Friday. The economy added way more jobs than expected, which pushes the Fed's rate cuts further out. Fed funds are at 3.63% right now, and Chair Warsh is signaling no hurry to ease. For growth stocks — especially unprofitable or high-valuation ones — higher for longer rates are kryptonite. Luna: So it's a rate-expectation shock. But the Dow is full of value and cyclical names that actually benefit from a strong economy. Makes sense they'd hold up better. Lucas: Exactly. Look at the individual names: CrowdStrike down 14.2% in five days, Shopify down 11.7%, Datadog down 15.6%, Palantir down 15.6%. These are stocks that had massive runs in 2024 and 2025, and now they're giving a lot back. Meanwhile, the Dow components — industrials, financials, energy — are relatively stable. Luna: That's a brutal week for anyone holding those names. I'm seeing the S&P 500 growth ETF, VUG, down 4.8%, while the value counterpart might be flat or positive. Lucas: Right. The Russell 2000 small-cap index is down 2.5%, which is less than the NASDAQ but more than the Dow. Small caps are actually an interesting story here — they've been lagging for years, but if the economy stays strong and rates stabilize, they could catch a bid. Some analysts are calling this a rotation into value and small caps. Luna: Is that a healthy sign for the bull market? Or should we be worried that the leaders are cracking? Lucas: Historically, rotations like this can extend the cycle. If money moves from overvalued growth into cheaper parts of the market, that's often a sign of a maturing bull, not a dying one. But you have to watch the magnitude. A 15% drop in Palantir in one week is violent. If it spreads to the broader market, that's trouble. Luna: So what's the macro backdrop? GDP growth is still positive — real GDP grew at 1.6% annualized in Q1 2026, up from 0.5% before. That's not booming, but it's not recessionary either. Lucas: Right. The economy is in this weird Goldilocks zone — not too hot, not too cold. But the jobs report was on the hot side, which is why rate-cut expectations got pushed out. The market had been pricing in maybe two cuts this year; now that's looking optimistic. For growth stocks, their valuations are based on cash flows far in the future, and those future dollars get discounted more heavily when rates are high. Luna: So the pain is concentrated in the high-duration, high-beta names. The Dow's resilience makes sense — those are mostly mature, dividend-paying companies. Lucas: Precisely. And it's not just tech. The ARKK fund has names like Tesla, Roku, Zoom — all down sharply. The innovation trade is getting hammered. Meanwhile, you have headlines about Bitcoin cratering and a new Wall Street crypto hype rising — that's another risk-on asset that's struggling. Luna: I want to go back to the small-cap angle. The Russell is down 2.5%, but if this is a rotation, shouldn't small caps be up? They're more rate-sensitive and often have floating-rate debt. Lucas: That's a good point. Small caps have been battered by high rates for two years. But the hope is that if the economy stays strong, their earnings can improve. The recent data — GDP growth at 1.6%, still-positive job gains — supports that. But the market isn't fully buying it yet. I think we need to see a few more weeks of this rotation before calling it a trend. Luna: What about the AI trade? Nvidia and other AI hardware stocks have been leaders. Are they getting caught up in this sell-off? Lucas: Not as badly. Nvidia is down maybe 3-4% on the week, which is less than the NASDAQ average. The AI theme still has strong secular demand — hyperscalers are still building data centers. But some of the software names that rode the AI wave, like CrowdStrike and Palantir, are getting hit harder. That suggests the market is distinguishing between infrastructure and hype. Luna: So the takeaway for investors: check your portfolio for high-growth names that might be overexposed. Maybe trim some of those winners and add to value or small caps? Lucas: That's one approach. But timing rotations is notoriously hard. What I'd say is: understand why your stocks are moving. If you own Palantir because you believe in its long-term AI thesis, then a 15% drop in a week doesn't change that — but it does test your conviction. If you're in it for the momentum, then the momentum has clearly turned. Luna: Speaking of conviction — you know, one thing that helps us keep doing these daily deep dives is that a small group of listeners chips in monthly via buy me a coffee dot com slash fexingo. It's ad-free and listener-supported, and that support lets us dig into exactly these kinds of rotations without pulling any punches. Lucas: Yeah, it's a small thing that makes a big difference. No pressure ever — but if these conversations have helped you think about a decision differently, that's exactly the kind of signal that keeps us going. Luna: Alright, back to the market. So what's the one thing listeners should watch this week? Lucas: I'd watch the NASDAQ for a stabilization. If it can hold above 25,000 and start to recover, this rotation might be short-lived. If it breaks below, that's a red flag for the entire bull market. Also, watch the Fed speakers — any hint of a dovish pivot could reverse this entire move. Luna: And for the Dow, if it starts to dip too, then the rotation is over and it's a broad sell-off. Lucas: Exactly. For now, it's a tale of two markets. And it's a good reminder that bull markets don't move in straight lines — they rotate, they correct, they test you. The question is whether you're positioned for the next leg or just holding yesterday's winners. Luna: Well said. Thanks for breaking it down.