Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Market Breadth Is Broadening Beyond Mega-Cap Tech
Transcript
- Luna: So the S&P just hit another record, up three percent in five days, and everyone's still obsessing over the mega-cap names. But if you look under the hood, something else is happening. Lucas: Yeah, and that's exactly what we're going to dig into. This week, the Russell 2000 is up nearly three percent too, and the S&P is up three percent. But the real standout is small caps and mid caps starting to keep pace. That hasn't been the story for most of this bull market. Luna: Right, because for the longest time it was all about the mega-cap tech names. The 'Magnificent Seven' or whatever we call them now. So what's changed? Lucas: Well, look at Shopify. It's up twenty-five percent in five days. That's a huge move for a company that's already a large cap. And it's not just Shopify — Palantir is up twenty-six percent. These are big, liquid names, but they're not the usual mega-cap suspects. Luna: And then you have Datadog, which is down eleven and a half percent. So the market is getting picky. It's rewarding companies that are showing clear AI monetization and punishing those that aren't. Lucas: Exactly. That's the key nuance. The market is broadening, but it's not a rising tide that lifts all boats equally. It's a selective broadening. Investors are rotating into names where they can see the earnings impact, not just the narrative. Luna: So is this a sign that the bull market is getting healthier, or is it just the same concentration risk in different packaging? Lucas: That's the million-dollar question. On one hand, breadth is improving. The advance-decline line has been strong, and more sectors are participating. But you still have a lot of the index gains driven by a handful of names. The S&P is at 7,711. If you strip out the top ten stocks, the index is probably closer to where it was in March. Luna: So the average stock isn't doing as well as the index suggests. That's a classic sign of a mature bull market, right? Lucas: It is, but it's also an opportunity. When breadth expands, active managers and stock pickers tend to outperform. The market is giving you more chances to find value outside the mega-caps. And we're seeing that in the performance of mid-cap and small-cap ETFs. Luna: Let's talk about the economic backdrop. GDP growth decelerated to one and a half percent annualized, but the market is still rallying. How do you square that? Lucas: You know, that's one of the paradoxes of this bull market. The economic data is softening — real GDP growth is down from 2.1 percent to 1.5 — but the market is looking through that. It's betting on earnings resilience and maybe a Fed that's reluctant to hike despite some hawkish talk. Luna: And speaking of the Fed, Governor Cook said she's 'prepared to act' on a rate hike. That's not exactly the dovish backdrop you'd expect for a rally. Lucas: Right, but the market is also pricing in the possibility that the Fed won't move. The fed funds rate has been flat at 3.63 percent for over a month. And there's chatter about fewer meetings under a potential Warsh chairmanship. So the market is betting on patience. Luna: And then you have Kalshi traders saying there's a likely chance the S&P hits 8,000 this year. That's a leap of nearly four percent from here. That seems ambitious, doesn't it? Lucas: It does, but it's worth noting that prediction markets are often momentum-chasing themselves. When the index is making new highs, traders extrapolate. But the fact that people are even talking about 8,000 tells you how strong the animal spirits are. Luna: So how should an investor position for this? Should they chase the momentum in Shopify and Palantir, or look at the laggards? Lucas: I'd be careful about chasing big single-day moves. Shopify's earnings were strong, but a twenty-five percent surge in a week means you're paying up for expectations. Instead, look for companies with similar fundamentals that haven't moved yet. That's where the opportunity is. Luna: So you're saying the rotation is still in its early innings. Lucas: I think so. The market is rewarding companies that show ai driven revenue growth, but there are plenty of quality companies trading at reasonable valuations that haven't participated. The key is to find those before the crowd does. Luna: And what about the risk side? If the Fed actually does hike, that could hit the high-multiple names hardest. Lucas: Absolutely. A rate hike would be a headwind for long-duration assets, including many of the tech names that have led this rally. That's why diversification into value and mid-caps makes sense. It's a hedge against that scenario. Luna: And speaking of hedging, I know you've been looking at the VIX. It's been quiet, even with all this volatility under the surface. Lucas: Yeah, the VIX is low, which suggests complacency. But the moves in individual stocks — like Datadog's drop — show that risk is alive and well. The market is calm on the surface, but underneath, there's a lot of rotation and repositioning. Luna: So maybe this is a time to be selective, not just buy the index. Lucas: Exactly. The index is fine, but your returns are going to be determined by your stock picks. This is a stock-picker's market. Luna: Before we wrap up, I know you've been thinking about this broadening theme for a while. What's the one thing you want listeners to take away? Lucas: The bull market is broadening, but it's not indiscriminate. Focus on companies with clear earnings and AI monetization, and don't be afraid to look beyond the mega-caps. That's where the next leg of this rally could come from. Luna: And if you're enjoying these conversations and want to see us keep making them, you know what we always say. A handful of listeners chip in monthly at buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these. Lucas: Yeah, that's the real economics of it. No ads, listener funded, and we're grateful for every supporter. It keeps us independent and able to dig into topics like this without any corporate strings. Luna: Alright, back to the market. So if someone wants to start rotating into mid-caps, what's a good first step? Lucas: Start with an ETF like the iShares Russell Mid-Cap or the S&P 400. They give you broad exposure without single-stock risk. From there, you can pick individual names that fit the AI theme. Just be patient and do your homework. Luna: And keep an eye on the Fed. Because if they actually hike, that could change everything. Lucas: Always. But for now, the bull market is alive and broadening. The question is whether you're positioned to take advantage of it.