Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Palantir Dropped 16 Percent in a Broad Tech Selloff
Transcript
- Lucas: So the S&P 500 is at 7,350 today, which sounds like a breathtaking number — and it is — but the index has actually dropped two percent in the last five days. And when you peel back the hood, what you see is not a uniform pullback. It is a violent rotation. Luna: I was going to say — the Dow is up, the Russell 2000 is up. The pain is concentrated. Lucas: Exactly. The Dow Jones Industrial Average closed at 52,021, up nearly a percent over five days. The Russell 2000, which tracks small caps, is up about eight tenths of a percent. Meanwhile the Nasdaq Composite shed four point six percent. That is a thirteen hundred point gap in a single week. Luna: And at the epicenter of that selloff is Palantir. Down sixteen point three percent in five days. That's not a dip — that's a correction within a correction. Lucas: Right. Palantir closed today at 107.51. A week ago it was north of 128. So the question is: does this tell us something specific about Palantir, or is it a warning sign for the whole 'narrative-driven growth stock' trade? Luna: Given that ARKK is down four and a half percent, and the Vanguard Growth ETF — VUG — is down nearly five percent, I think we have to look at the macro driver. Lucas: Let's start with the macro. The effective Fed funds rate is 3.63 percent. The Fed held steady at their June meeting — no cut, no hike. And the market's reaction has been: 'Okay, rates stay here, but growth expectations are already priced in for the high-multiple names.' So when you have a stock like Palantir that trades at a premium because of its AI narrative, any whiff of uncertainty sends it lower faster. Luna: But the Dow is setting records. That feels like a very different market from the one punishing Palantir. How do you reconcile those two pictures? Lucas: They are the same market — just different pockets. The Dow is heavy on industrials, financials, healthcare. Those sectors benefit from a stable rate environment. JPMorgan, for instance, has been a quiet leader this year. And with the news today that they named Doug Petno and Troy Rohrbaugh as co-presidents, the leadership transition is orderly. That kind of stability gets rewarded. Luna: Meanwhile, Palantir is in the opposite camp. It's a high-growth, high-expectation stock that needs the story to keep getting better every quarter. Lucas: And the story did take a hit this week. There was a Bloomberg report suggesting that some institutional investors are trimming their ai exposure positions because the valuations have gotten stretched. Palantir is one of the most visible names in that category. It has a market cap of roughly 65 billion dollars on revenue that's still under 3 billion. The multiple is immense. Luna: But let's be fair — Palantir did report a solid first quarter. Revenue was up year-over-year, and their U.S. commercial business is growing at a pretty rapid clip. So is this a fundamental problem or a sentiment problem? Lucas: I'd call it a sentiment problem that is exacerbated by positioning. When the Nasdaq starts to slide, the first things to go are the names with the highest beta and the highest valuations. Palantir's beta is well above 1.5. So a two percent down day in the Nasdaq can easily become a five percent down day for Palantir. And once it starts falling, stop-losses kick in, momentum traders reverse, and the move accelerates. Luna: That's the mechanical explanation. But I think there's also a deeper question about whether the market is starting to differentiate between AI hype and AI revenue. Not every company that talks about AI is going to be the next NVIDIA. Lucas: That's the key distinction. NVIDIA's selloff has been relatively muted compared to Palantir. NVIDIA is actually down but not nearly as severe. Because NVIDIA has the earnings to back up the story. Palantir is still in the 'show me' phase for a lot of investors. They had a big government backlog, but the commercial ramp is still unproven at scale. Luna: So what does this week tell us about the broader bull market? Is this a healthy rotation or a warning sign? Lucas: I think it's a healthy rotation — for now. The S&P 500 is still up for the year. The Dow is making new highs. The Russell 2000 is participating. That is the definition of broadening out. The risk would be if the selloff in tech starts to infect the rest of the market. But right now, money is simply moving from high-growth into value and small caps. That's actually a sign of a mature bull market, not a dying one. Luna: One interesting data point: the spread between the S&P 500 equal-weight index and the market cap weighted index has been narrowing. That tells you that the mega-cap leadership is fading and the average stock is catching up. Lucas: Right. And that's the kind of environment where stock pickers can shine. You don't need to own the seven biggest companies to outperform. You can find value in financials, in industrials, in smaller tech names that haven't been bid up to absurd levels. Luna: You know, this is exactly the kind of conversation that I think a lot of our listeners find useful — not just what's happening, but how to think about it. And I think it's worth mentioning that the reason we can have these conversations without any commercial interruption is that a small group of listeners supports the show directly. Lucas: Yeah, it's a pretty simple setup. If our money conversations have helped you think about a decision differently, you can chip in at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. It's not a big ask — it just helps keep the podcast ad-free and focused on the substance. Luna: And honestly, it matters. So thank you to everyone who already does that. Now, back to the rotation — Lucas, you mentioned the Fed hold. How long do you think rates stay at 3.63 percent? Lucas: The market is pricing in a cut in September. But the Fed has been consistent: they need to see more progress on inflation. The GDP numbers are solid — real GDP growth annualized at 2.1 percent. The economy is not begging for a cut. So I think they hold at least through the summer. Luna: And if they hold, what does that mean for Palantir and its peers? Lucas: It means the pressure stays on. High-growth stocks need low rates to justify their multiples. If rates stay elevated, the discount rate on future cash flows is higher, and the present value of those distant earnings shrinks. That's the math behind this selloff. Luna: So Palantir could keep falling until either the earnings improve dramatically or the macro outlook softens enough to justify a cut. Lucas: Exactly. And in the meantime, the money that left Palantir this week is going somewhere. That's the part I find interesting. The Dow gained. The Russell gained. So the question for an investor isn't 'should I sell everything?' It's 'where should I rotate?' Luna: And what's your take on that? If you had to pick one area that looks attractive right now. Lucas: I'd point to mid-cap value. The S&P 400 MidCap Index has been quietly outperforming. Mid-cap companies often have the growth profile of small caps with the stability of large caps. And they're not as crowded as the mega-cap tech trade. In a rotation, that's a sweet spot. Luna: Okay, so let's zoom back out. We've got the Dow at 52,000, the S&P at 7,350, the Nasdaq down sharply. Palantir down 16 percent. Is there a scenario where this turns into a full-blown correction? Lucas: Sure — if the selloff in tech spreads to financials and industrials. But that would require a catalyst, like a sudden spike in unemployment or a geopolitical shock that hits confidence. Right now, the data doesn't support that. Jobless claims are still low. Consumer spending is stable. Corporate earnings are still growing, just at a slower pace. Luna: I think that's the crucial point. The bull market isn't over; it's just changing clothes. And if you're paying attention, you can see which new sectors are stepping into the spotlight. Lucas: Exactly. And that's why this week matters. It's a signal, not a siren. The market is telling us to be more selective, not to run for the exits. The hosts who ignore that signal are the ones who get left behind when the next leg of the rally starts.