Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / How the Nasdaq Rout Differs From the S&P 500 Selloff
Transcript
- Lucas: So it's Monday, June ninth, and if you glanced at your portfolio over the weekend, you probably felt that knot in your stomach. The Nasdaq shed another 6.6 percent over the past five trading days. The S&P 500 is down 3.8 percent. But the Dow is barely off 0.7 percent. That's not random noise — that's a specific story about what's getting sold and why. Luna: And the Russell 2000, the small-cap index, is down 2.6 percent. So it's not a blanket risk-off move. It's heavily concentrated in large-cap tech. Lucas: Exactly. Let's put a number on the concentration. As of late May, the top ten stocks in the S&P 500 — mostly mega-cap tech — accounted for roughly 35 percent of the index's market cap. So when those names get hit, the S&P feels it. But the Nasdaq is essentially those names plus a few more. That's why it's down double the S&P's move. Luna: And the Dow only has a handful of tech names. Apple, Microsoft, Salesforce, Intel. So it's barely budged. That tells me this isn't a macro panic — it's a tech-specific repricing. Lucas: Right. And the VIX tells a similar story. It's jumped to 21.57, up 34 percent in five days. That's elevated, but not crisis-level. In March 2020 it hit 82. Even during last August's carry trade unwind it touched 38. So 21 is uncomfortable, but it's not screaming systemic fear. Luna: But then look at the VVIX — the index of VIX options prices. It's at 99.6, up nearly 11 percent. That's a different signal. Lucas: That's the piece most people miss. The VIX tells you how much implied volatility the market expects in the S&P 500 over the next 30 days. The VVIX tells you how much uncertainty there is about that volatility — it's a measure of tail risk. When the VVIX is near 100 while the VIX is in the low twenties, it says options traders are hedging aggressively against a bigger move. They're not sure whether this selloff stays contained to tech or spills over. Luna: So the VIX says 'moderate concern,' but the VVIX says 'we're paying up for crash protection.' That's a divergence you don't see in a garden-variety pullback. Lucas: And it ties directly to the yield curve. The ten-year Treasury yield is at 4.55 percent, up from 4.47 last week. The two-year is at 4.17 percent. So the spread has widened to 41 basis points. That's a steeper curve — and a steeper curve usually means the bond market expects stronger growth or higher inflation down the road. But if the selloff is about growth fears, you'd expect yields to fall, not rise. Luna: Unless the selloff is about something else. Like AI valuations getting too frothy, and the repricing is a rotation out of tech into value or small caps. Lucas: That's the bull case for this selloff — that it's healthy. The Russell 2000 is only down 2.6 percent. The Dow is flat. Financials and energy have held up. So the narrative could be: the market is finally acknowledging that NVIDIA, Microsoft, and a handful of AI plays were priced for perfection, and now that rates are sticky around 4.5 percent, the discount rate on future cash flows is higher, so those long-duration tech stocks get compressed. Luna: But the bear case is that this is the beginning of a broader correction. If the VVIX stays elevated and the VIX continues to climb, it could infect the rest of the market. The question is whether the Fed steps in. Lucas: The Fed's next meeting is June 17 and 18 — just over a week from now. The CME FedWatch tool is showing about a 60 percent probability of a hold, 40 percent probability of a 25-basis-point cut. That's shifted from basically zero chance of a cut a month ago. So the selloff is already changing expectations. Luna: But if the selloff is about AI valuation, not recession, a cut might not help. Lower rates would boost growth stocks, but if the problem is that earnings multiples simply got too high, a quarter-point cut won't change that calculus. Lucas: That's a really important distinction. And it's why I'm watching the VIX term structure more than the level itself. The VIX futures curve is in contango — meaning front-month contracts are cheaper than later months. But the gap has narrowed significantly. A flattening contango often precedes a VIX spike. If the front-month VIX climbs above the second month — backwardation — that's when you get panic. Luna: We're not there yet. But the VVIX at nearly 100 suggests traders think we could get there fast. Lucas: Let me give listeners one concrete thing to watch. If the VIX closes above 25 this week, and the VVIX stays above 100, that's the signal that the selloff is broadening. If instead the VIX pulls back to 18 or 19 while the VVIX also drops, then this was just a tech shakeout and we move on. Luna: And on the macro side, Wednesday we get the CPI report for May. If core inflation comes in below 3.2 percent, that could give the Fed cover to cut. If it's hot, yields go higher and tech gets squeezed further. Lucas: So the next 48 hours are genuinely consequential. But let me step back for a second — because conversations like this are exactly why we started this show. We try to cut through the noise and give you a framework. And if you find that useful, one way to support us is at buy me a coffee dot com slash fexingo. It's a small gesture that helps us keep the show ad-free and independent. Luna: Yeah, and your support really does make a difference. It means we don't have to tailor our takes for sponsors. We can just follow the data wherever it goes. Lucas: So back to that term structure point. The other thing I'm watching is the VIX futures curve for September and December. Those contracts are pricing in elevated volatility through year-end. That could mean the market sees more turbulence ahead — or it could just be a seasonal pattern because September and October are historically choppy. Luna: Right, but if the curve is steepening in the back months, that's a signal that traders are hedging for a scenario where the selloff isn't resolved quickly. That argues against the 'healthy rotation' narrative. Lucas: Exactly. And that's where the VVIX gives you an edge. A high VVIX means the options market is pricing in a wide range of outcomes for where the VIX itself will be. That's the definition of uncertainty. And uncertainty tends to persist. So even if this selloff stabilizes this week, we might see a higher floor for volatility into the fall. Luna: Which means if you're a long-term investor, you don't want to make big moves based on one week. But you do want to check your portfolio's exposure to mega-cap tech. If you're overweight, this is a reminder to rebalance. Lucas: And if you're a trader, the VIX at 21.57 with a VVIX at 99.6 is a setup that has historically offered attractive risk-reward for selling put spreads on the S&P 500 — because the tail risk premium is elevated but the actual probability of a crash remains low. That said, it's not a trade for beginners. The VVIX can spike to 150 before you know it. Luna: We should also mention the ten-year yield at 4.55. That's the highest since October 2023. If it breaks above 4.6, that could trigger another leg down in risk assets. Lucas: And the thirty-year is at 5.01 percent. Above 5 percent psychologically matters. For bond investors, those yields are finally competitive with equities on a risk-adjusted basis. That's another reason tech stocks are under pressure — capital is flowing back into fixed income. Luna: So to summarize: the Nasdaq is down 6.6 percent, but the Dow is flat. The VIX is elevated but not panicked, while the VVIX is near 100 signaling tail risk hedging. The yield curve is steepening, which complicates the growth narrative. CPI on Wednesday and the Fed next week are the big catalysts. Lucas: And the real message is: don't assume this is just a dip to buy. It could be, but the data suggests caution. The VVIX doesn't lie about uncertainty. And right now, uncertainty is the story.