Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why Growth Stocks Are Getting Crushed While the Dow Holds Steady
Transcript
- Lucas: So here's a weird one. The Dow Jones Industrial Average is basically flat over the last five days — down about one percent. The S&P 500 is off two-point-seven. But the NASDAQ? Down four-point-three percent. And if you look at high-growth names, they're getting absolutely crushed. Luna: Yeah, I saw that. CrowdStrike down fourteen percent in a week. Datadog nearly fourteen percent. Palantir off ten. Meanwhile the Dow barely budged. What's going on? Lucas: Right. The headline is that a hot jobs report on June fifth pushed rate cut expectations further out. Chair Warsh is facing policy tests. The effective fed funds rate is still at three-point-six-three percent. And when rates stay higher for longer, growth stocks — the ones with big promises about future earnings — get repriced first. Luna: It's like the market is saying, 'Show me the money now, not in five years.' Lucas: Exactly. And that's the mechanism. Growth stocks carry higher duration — their present value is more sensitive to changes in discount rates. So when the Fed signals it's not cutting soon, those stocks take a bigger hit. Luna: Your analysis of these markets is exactly why this show exists. And I think it's worth mentioning — we keep Bull Market Conversations free and ad-free because we believe this kind of nuanced market breakdown should be accessible to everyone. If you find value in it, you can support the show at buy me a coffee dot com slash fexingo. No pressure, just if you want to keep it going. Lucas: Appreciate that. And speaking of value — the Dow is heavy on industrials, financials, health care. Those sectors benefit from a strong economy. Higher rates actually help banks' net interest margins. So the rotation out of growth into value makes sense. Luna: But is this a rotation or a warning sign for the whole bull market? Lucas: Great question. The S&P 500 is at seven thousand four hundred six — that's still near all-time highs. The Dow is at fifty thousand seven hundred eighty-six. So the overall market isn't crashing. But the NASDAQ's four-point-three percent drop in five days is notable. It suggests investors are repositioning, not fleeing. Luna: And the Russell 2000 — small caps — only down two-point-six percent. So smaller companies are actually holding up better than big tech. Lucas: Right. That's the opposite of what you'd expect if this were a risk-off panic. Small caps are more economically sensitive. If the economy were rolling over, they'd get crushed. Instead, they're outperforming. That supports the rotation narrative. Luna: So the market is basically picking winners based on rate sensitivity. Growth stocks that need low rates to justify their multiples are out. Value stocks that cash in on current conditions are in. Lucas: Exactly. And the data backs it up. Look at the IWF — the iShares Russell 1000 Growth ETF — down four-point-one percent in five days. VUG, the Vanguard Growth ETF, down four-point-three. Meanwhile the Dow's only off one percent. Luna: What about the ARK Innovation ETF? That's down five percent. Cathie Wood's funds are getting hit hard. Lucas: Yeah, ARKK is down five percent. That fund is concentrated in disruptive growth names that are super rate-sensitive. So it makes sense. But here's the thing — this divergence isn't happening in a vacuum. The real GDP growth rate just came in at one-point-six percent annualized, up from zero-point-five. The economy is actually accelerating. Luna: Wait, so growth stocks are getting crushed even as the economy picks up? That seems backwards. Lucas: It's counterintuitive. Normally a stronger economy lifts all boats. But the context matters. The jobs report was hot — that pushed bond yields up. The ten-year Treasury yield ticked higher. And when yields rise, growth stocks' future cash flows get discounted more heavily. So even good economic news can hurt them if it means rates stay high. Luna: So it's not that the economy is bad. It's that the market's expectations for rate cuts got pushed out. The Fed isn't cutting anytime soon. Lucas: Correct. The fed funds rate is at three-point-six-three percent. Interest on reserve balances is three-point-six-five. No movement. And Chair Warsh has made clear he's watching inflation closely. The market was pricing in cuts by mid-2026. Now that's looking less likely. Luna: So what does this mean for the bull market? Can it continue with this divergence? Lucas: It can, but it changes the character. A bull market led by value and cyclicals is different from one led by tech and growth. It's less exciting maybe, but it can be more durable. The Dow and S&P 500 are still near highs. Breadth is actually decent — more sectors are participating. Luna: But if growth stocks keep falling, won't that eventually drag down the whole market? Lucas: That's the risk. The NASDAQ is heavily weighted toward mega-cap tech. If those stocks continue to correct, it could spill over. But so far, the rest of the market is absorbing it. The NYSE composite is only down one-point-one percent. That's a sign of resilience. Luna: So what's the takeaway for investors? Should they be moving out of growth and into value? Lucas: I'm not going to give personal advice, but the data suggests a rotation is underway. Growth stocks are more vulnerable in a higher for longer rate environment. Value stocks — especially in financials, industrials, and energy — are benefiting from a strong economy and higher rates. That's the trade right now. Luna: Are there any growth stocks that are bucking the trend? Lucas: Not many. Even NVIDIA, which has been a leader, is down on the week. The premarket movers today are mostly down. But some companies with strong earnings and cash flows are holding up better. The key is to look at profitability, not just revenue growth. Luna: So the market is rewarding companies that can deliver earnings now, not just promises. Lucas: Exactly. And that's a healthy shift. It encourages discipline. Companies that can generate cash and return it to shareholders are winning. Those that need to borrow to fund growth are getting penalized. Luna: I guess the bigger question is whether this divergence widens or narrows. If the economy keeps growing, value might keep outperforming. But if growth slows, then maybe growth stocks become cheap enough to buy again. Lucas: That's the million-dollar question. For now, the real GDP growth rate is accelerating. The nominal GDP is over thirty-one point eight trillion. So the economy has momentum. If that continues, value should do well. But if we get a shock — geopolitical, earnings miss, something — then the divergence could snap back quickly. Luna: It feels like the market is pricing in a Goldilocks scenario — not too hot, not too cold — but the hot jobs report threw cold water on rate cuts. Lucas: Exactly. The market wanted the Fed to cut. The data said not yet. So growth stocks are paying the price. But the broader market is saying the economy is fine. That's the tension we're living through. Luna: So as we head into the rest of June, you're watching the NASDAQ and the Russell for signs of whether this is a brief rotation or a longer-term shift? Lucas: Yeah. If the NASDAQ stabilizes and the Russell keeps holding up, it's a rotation. If the Russell starts to fall too, then it's a broader risk-off move. That's the key cross-check. Luna: And either way, it's a reminder that bull markets aren't straight lines. They have rotations, divergences, and moments like this where the story gets messy. Lucas: That's exactly right. And that's what makes it interesting. The bull market isn't over — it's just changing costumes.