Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Are Making Growth Stocks a Trap
Transcript
- Lucas: The S&P 500 is at 7,408, down less than one percent over the last five days. Not exactly panic territory. But if you look under the hood, some of the most popular growth names in the market are getting absolutely hammered. Luna: Yeah, Shopify down 8.5 percent in a week. CrowdStrike down almost 10. Palantir down 8. That's not a broad sell-off — that's a targeted rotation. Lucas: Exactly. The Nasdaq-100 is down one and a half percent over the same stretch, so the pain is concentrated in a subset of stocks that had been the darlings of this bull market. And I think there's a clear story here about why. Luna: Let's start with the macro picture. Oil at a hundred dollars a barrel is starting to bite. The CNBC headline this morning was basically 'the market can no longer brush off war.' When energy costs spike, it hits growth companies disproportionately. Lucas: Right. Growth stocks trade on the expectation of cash flows far in the future. Higher input costs today compress those margins, and the market reprices them downward. Meanwhile, energy stocks and cyclicals are actually doing okay. The New York Stock Exchange composite — the broadest measure of value-oriented, dividend-paying stocks — is actually up a bit over the last week. Luna: So the bull market isn't over. It's just shifting gears. And the stocks that were leading the charge are now the ones getting left behind. Lucas: It's worth asking whether these growth names had simply gotten ahead of themselves. CrowdStrike at 183 after a 10 percent drop — that's still a price to earnings ratio well above the market average. But the market is suddenly less willing to pay for that premium. Luna: And it's not just cybersecurity. Datadog down 5.7 percent. Cloudflare down 4.6. These are all names that rode the AI wave and the work-from-home tailwinds, but now the narrative is shifting toward 'show us the earnings.' Lucas: The thing that catches my attention is that this is happening while the Fed funds rate is sitting at three point six three percent, completely flat. So it's not a tightening shock that's causing this. It's a reassessment of risk in a world where oil is up, geopolitics are messy, and the next leg of the bull market may not be led by the same names. Luna: Which brings us to a broader question: are growth stocks becoming a trap for retail investors who buy the dip? Lucas: That's the million-dollar question. If you bought Shopify at 130 a week ago thinking it was a bargain, you're already down 13 percent. The dip keeps dipping. And there's no guarantee these names bounce back quickly, especially if the rotation into value has legs. Luna: I want to step back for a second because this is exactly the kind of conversation that we try to have on this show without any ads breaking it up. And that's intentional — we want to keep the focus on the analysis, not on selling you something. Lucas: Yeah, we deliberately don't run ads on these. If that approach resonates with you and you want to support it, there's a simple way. Head over to buy me a coffee dot com slash fexingo. It helps us keep doing what we're doing. Luna: And it's genuinely appreciated. Now back to the rotation — I think the key is to watch whether the S&P 500 can hold above 7,400. If that level breaks, the decline could broaden. Lucas: Good point. The index itself is still within striking distance of its all-time highs. But if the growth stocks continue to slide and the value rotation doesn't pick up enough steam, the whole market could start to feel the weight. Luna: So what's an investor supposed to do right now? Sit tight? Shift into energy? Go to cash? Lucas: I think the most prudent move is to look at the quality of earnings in your portfolio. The market is rewarding companies that can actually generate cash today, not just promise it tomorrow. If you're holding a growth stock that's losing money or barely profitable, the bar is higher now. Luna: And that's exactly why we're seeing this divergence. The Russell 2000 is down 0.8 percent, same as the Dow. But the ARK Innovation ETF, which is packed with unprofitable growth, is down 1.6 percent. Lucas: Cathie Wood's fund has been a bellwether for this exact dynamic. When investors are risk-on, ARKK flies. When they start to get nervous about input costs or geopolitical headlines, it gets hit first and hardest. Luna: So is this the end of the growth-led bull market? Or just a pause? Lucas: I'd say it's a correction within a longer-term uptrend. But corrections can last months. And the stocks that led the previous cycle often don't lead the next one. The names that come out of this rotation could be very different. Luna: To me, that's the most interesting question. If the bull market continues — and I think it probably does, given the economic data — what sectors take over? Energy is one obvious candidate, but financials have been quiet too. Lucas: Financials, particularly regional banks, have actually been pretty resilient. The Fed's flat rate environment helps their net interest margins. And if the economy stays strong, loan demand should hold up. Luna: So the play might be to look at sectors that benefit from stable interest rates and higher commodity prices, rather than chasing the momentum names that are getting crushed. Lucas: Exactly. And that's the kind of shift that can catch a lot of people off guard because they've been trained to buy the dip in tech. But this time, the dip may not be a buying opportunity — it might be a warning. Luna: We'll see how the next few weeks play out. But for now, the data is telling us that the bull market is still alive, just with a very different set of leaders. Lucas: And that's a healthy thing in the long run. A bull market that relies too heavily on a handful of high-multiple stocks is fragile. A broader rotation makes the market more durable. Luna: So keep an eye on those growth names, but maybe don't be in a rush to catch the falling knife. Lucas: Right. Let the dust settle. The data will tell us when it's time to step back in.