Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Are Repricing Growth Stocks in 2026
Transcript
- Lucas: So the S&P 500 closed today at 7,497 — up about 1.9 percent over the past five days. But what really caught my eye was the Nasdaq: 26,183, up 2.8 percent. Growth stocks are having a moment. Luna: And it's not just the mega-caps. Look at Datadog — up over 16 percent in five days. Cloudflare up 10 percent. These are the names that got hammered in 2022 and really lagged through most of 2023. Lucas: Right. And I think there's a broader story here about how bull markets reprice growth stocks. We've spent a lot of time this year talking about small caps and value. But the market is rotating again. Luna: What's driving it? Is it just AI euphoria spilling over? Lucas: Partly. But I'd argue it's more about the reset in expectations. Coming into 2026, the consensus was that rates would stay higher for longer. Growth stocks trade on distant future cash flows, so higher rates are poison. But the Fed funds rate has been stuck at 3.63 percent since May — no hike, no cut. That stability is actually a green light. Luna: So the market is pricing in that the Fed is done. And that removes the biggest overhang for growth names. Lucas: Exactly. And then you layer on the AI narrative. Datadog and Cloudflare are both infrastructure plays — they help companies manage and secure AI workloads. So you've got a rate regime that's no longer tightening, plus a genuine demand story. That's a powerful combination. Luna: But not all growth stocks are created equal. CrowdStrike is up 13.5 percent in five days — that's cybersecurity, which is more about defense spending than AI per se. Lucas: True. Though CrowdStrike also benefits from AI — specifically, the need to secure AI systems. But you raise a good point: the market is distinguishing between growth that's tied to structural tailwinds and growth that's just expensive. The ARKK fund is up 5.2 percent, so speculative growth is also rallying, but not as much as the quality names. Luna: It feels like the market is rethinking what it's willing to pay for growth. In 2021, it was all about revenue growth at any price. In 2022, multiple compression crushed those names. Now we're in a middle ground. Lucas: Yeah. And I think the key metric is the price to earnings ratio relative to the growth rate. For Datadog, which is still not hugely profitable on a GAAP basis, the market is looking at forward revenue multiples. Cloudflare trades at about 15 times forward sales — that's not cheap, but it's down from 50 times in 2021. Luna: So the repricing is more rational. The market is saying: we'll pay up, but not irrationally. You need to show actual adoption, actual revenue acceleration. Lucas: That's the crux of it. And the data backs that up. Real GDP growth is at 2.1 percent annualized, up from 0.5 percent a year ago. That macro backdrop supports corporate spending on software and cloud. So companies like Datadog and Cloudflare are benefiting from a healthier economy. Luna: Meanwhile, the small-cap rally has been the headline all June. The Russell 2000 is up 1.3 percent in five days, but its first-half performance was the best in 35 years. That's value-oriented, cyclical stuff. Lucas: Right. And I think the rotation into growth now is partly a function of that small-cap rally running a bit long. Investors are taking profits and moving into names that have been left behind. But it's not just a catch-up trade — there's fundamental logic. Luna: Let's talk about the elephant in the room: Hammack from the Cleveland Fed said today that AI could fuel inflation and that rate hikes might be necessary. That would be a direct threat to this growth rally. Lucas: It's worth watching. But the market didn't react much — the S&P barely budged on that headline. I think the consensus is that one hawkish Fed president doesn't change the committee's stance. The effective fed funds rate has been flat at 3.63 percent for two months. Luna: Still, it's a reminder that the narrative can shift fast. If we get a hot CPI print next month, growth stocks will be the first to sell off. Lucas: Absolutely. But for now, the momentum is with them. And I think there's a specific lesson here about how bull markets evolve. In the early stages, everything rallies. Then you get a barbell — value and defensive. Then, if the macro stabilizes, growth comes back into favor. Luna: That's the phase we're in. And it's worth asking: does this have legs? Or is it a summer fling? Lucas: I'd say it has legs as long as the AI investment cycle continues. Companies are still in the early innings of deploying AI infrastructure. That means demand for Datadog's monitoring tools and Cloudflare's edge network should persist for at least another couple of years. Luna: And if rates stay put, the discount rate applied to those future cash flows stays low. That's a sweet spot. Lucas: Exactly. So for listeners who are looking at their portfolios and wondering whether to chase this rally, I think the right frame is: don't chase, but don't ignore. If you've been underweight growth, a gradual addition to names with real AI exposure could make sense. Luna: And if today's conversation helped you think about that decision more clearly, that's exactly what we're here for. This show is ad-free and listener-supported. If you find value in it, you can help keep it going at buy me a coffee dot com slash fexingo. Lucas: Yeah, we really appreciate that. It's what lets us do deep dives like this without commercial breaks. Luna: So back to the repricing — one thing I'm watching is whether the IPO market starts to open up for growth companies. If these valuations hold, we could see a wave of tech IPOs later this year. Lucas: That would be the next chapter. A healthy bull market needs a functioning IPO pipeline. We're not there yet, but the conditions are improving. And that's a topic for another episode. Luna: For now, I think the takeaway is: growth stocks are back, but on more disciplined terms. The market is rewarding execution, not just promises. Lucas: Well said. And with the S&P at new highs, it's a good moment to reassess your own exposure. Thanks for listening, everyone.