Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / Why the Nasdaq Correction Is Different This Time
Transcript
- Lucas: The Nasdaq just logged its worst week since September 2022. Down five point one percent in five days. That puts it into correction territory — off more than ten percent from its high. Luna: And the Dow is down only four-tenths of a percent. That's a massive divergence. Lucas: Right. The Dow is basically flat. The S&P 500 is down two point eight percent. So this isn't a broad panic. It's a tech-led rout. And the question is: is this the start of something bigger, or just a healthy rotation? Luna: Let's start with the VIX. It jumped to twenty-one point five — up thirty-four percent in a week. That's fear, but not panic levels. Lucas: Exactly. And the VVIX — the volatility of volatility — is at one hundred two, up eleven percent. So options traders are hedging more, but they're not screaming collapse. The VVIX hit one hundred fifty during the regional banking crisis in 2023. This is elevated but contained. Luna: So what's driving the Nasdaq? Is it just AI stocks cooling off? Lucas: A lot of it is. The big AI names — NVIDIA, Microsoft, Alphabet — they've run up so much that any whiff of disappointment hits hard. Plus you've got that hot jobs report on Friday. Nonfarm payrolls came in strong, wages ticking up. Chair Warsh is now signaling that rate cuts are further out. That's a direct headwind for high-duration tech stocks. Luna: higher for longer rates compress future cash flows. That's exactly the math that hurts high-P/E tech. Lucas: Right. But here's the interesting part: the ten-year yield actually fell a couple of basis points to four point four seven. And the two-year fell too. The yield curve flattened. What does that tell you? Luna: Bond traders aren't buying the 'strong economy' story completely. They see the jobs report but also see GDP growth slowing — real GDP annualised is only one point six percent. So maybe the Fed stays on hold, but the economy isn't booming. Lucas: That's a tricky environment for stocks. If rates stay high and growth is moderate, you don't want to pay fifty times earnings for a stock that might miss next quarter. But you might want to own small caps or value stocks that have been left for dead. Luna: The Russell 2000 is down two point five percent this week — so it's not escaping, but it's not getting crushed the way the Nasdaq is. Lucas: And that's actually a bullish rotation signal. If money is leaving mega-cap tech and moving into small-caps and value, that's historically a healthy broadening of the market. It extends the cycle. Luna: But the narrative right now is all about AI. And there's a headline from CNBC: 'Where investors may find the next big wave for AI trade.' So people are still looking for the next AI play. Lucas: Yeah. The question is whether the 'next wave' is in a different part of the market — maybe software, maybe infrastructure, maybe even industrials that use AI. The mega-cap semiconductor trade might be saturated. Luna: And China is poaching AI talent from the US, according to that same report. So there's a geopolitical twist too. Lucas: That adds another layer of uncertainty. If the US loses its edge in AI talent, the premium on domestic AI stocks gets harder to justify. Luna: So for the average investor watching their tech-heavy portfolio drop five percent in a week — what's the move? Lucas: I think the worst thing you can do is panic-sell into a correction that might be a rotation. But I also don't think 'buy the dip' is automatic. You have to ask: is the dip in a stock that still has solid fundamentals, or was it just momentum? Luna: Right. The 2022 playbook was buy everything because the Fed would eventually cut. This time, the Fed isn't cutting soon. So dips might not bounce as fast. Lucas: Exactly. And if this turns into a real bear market for tech, you want to have some dry powder. But right now, the data doesn't suggest a recession. GDP is growing, jobs are solid, corporate earnings are still coming in okay. Luna: Speaking of staying grounded — I think conversations like this are exactly why people come to this show. It's not about hot takes, it's about thinking through the numbers. Lucas: Yeah. And if today was genuinely useful to you, the way these episodes stay ad-free is through listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo. It's a simple way to keep this going. Luna: Even a small contribution helps us spend more time on numbers like the VIX and the yield curve instead of chasing ad revenue. Lucas: Alright. Back to the market. So the other thing I'm watching is the VVIX. At one hundred two, it's not screaming, but it's above its long-term average. That tells me options dealers are nervous even if the headline VIX looks manageable. Luna: The VVIX tends to spike when dealers have to hedge tail risk. So maybe there's a concern that the correction could accelerate if we get one bad headline. Lucas: Exactly. Like if a major AI company reports disappointing guidance next month, or if the Fed surprises with a hawkish statement. The market is set up for a sharp move, even if the direction isn't clear. Luna: So how do you position for that? Options? Cash? Lucas: I think having some cash is always prudent. But if you're a long-term investor, this might be a good time to rebalance — trim some of the winners that got too expensive, and add to areas that are out of favor but have real earnings. Energy, financials, some healthcare. Luna: The ten-year at four point four seven makes dividend stocks more competitive too. You can get a four percent yield on some blue chips without taking tech risk. Lucas: That's a point I think a lot of people miss. When bonds yield four-plus percent, the opportunity cost of owning a high-growth stock with no dividend goes up. That's part of the rotation story. Luna: And with the yield curve at thirty-eight basis points — that's still inverted, but barely. Historically, when the curve uninverts, it often precedes a recession. But we're not there yet. Lucas: Right. The curve has been uninverting slowly for months. The fact that it flattened a bit this week actually suggests the bond market is less worried about a recession than it was a month ago. That's a positive. Luna: So the big takeaway: the Nasdaq correction looks scary, but it might be a normal rotation in a market that's still fundamentally okay. Lucas: I'd say that's fair. But investors should watch the VIX and VVIX closely. If the VIX breaks above twenty-five, that's when you start to worry. For now, it's a correction, not a crisis. Luna: And if you want to keep getting these calm, data-driven takes, you know where to find the coffee link. Lucas: Exactly. Thanks for listening. We'll be back tomorrow.