Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why This Bull Market Ignores CrowdStrike's Slump
Transcript
- Lucas: So CrowdStrike just had its worst week in months — down more than ten percent over the last five days — and yet the S&P 500 barely budged, off less than one percent. Luna: That's striking. A stock like CrowdStrike drops double digits and the market shrugs. What does that tell us about the bull market right now? Lucas: It tells me the market has become very selective. The same week, Cloudflare fell four and a half percent, Datadog almost five. These are high-flying software names that led the rally for years, and now they're giving back gains while the broad index holds near records. Luna: So is this the beginning of a broader tech unwind, or just a rotation within tech? Lucas: I'd argue it's a rotation, but a meaningful one. Look at the Russell 2000 — small caps are down one point three percent over the week, but they've been quietly leading for months. Meanwhile, mega-cap growth ETFs like iShares Russell 1000 Growth are down over two percent. Money is moving away from the most crowded trades. Luna: But CrowdStrike specifically — is there something company-specific going on? I saw the headline about their slump, but no obvious catalyst. Lucas: That's what makes it interesting. There wasn't a single piece of bad news — no earnings miss, no guidance cut. It looks like profit-taking after a massive run. The stock had tripled off its 2024 lows, and when momentum stocks get that extended, even a quiet week can trigger a pullback. Luna: So the market's message is: we still like cybersecurity, but we're not paying any price for it. Lucas: Exactly. And that's a healthy sign, actually. The bull market isn't indiscriminate anymore. It's saying, we'll reward companies with real cash flows and durable demand, but we're not going to bid up every software name to crazy multiples. Luna: Speaking of real demand — enterprise security budgets have been surprisingly resilient. Even with talk of a slowdown, companies keep spending on cyber protection. Lucas: Right, and that's the anchor for CrowdStrike's business. Their platform is mission-critical. In a world where breaches are becoming more frequent and more expensive, security is one of the last things CIOs cut. That's why the stock's long-term story remains intact, even if the short-term chart looks ugly. Luna: But if the market is rewarding selectivity, how do we tell which software names are worth holding through this rotation? Lucas: That's the million-dollar question. And it's worth reminding ourselves — and our listeners — that a lot of what we talk about on this show, from market structure to sector rotation, is made possible by their support. If you've gotten something out of these conversations, buying us a coffee helps keep the show ad-free and independent. It's buy me a coffee dot com slash fexingo. Even a couple of dollars a month genuinely makes a difference. Luna: Yeah, absolutely. It's a small way to keep this going, and we appreciate every bit of it. Now, back to the rotation — what should investors actually look for? Lucas: I think the key is to focus on companies with what I call 'mission-critical' status. CrowdStrike has it in security, Cloudflare has it in content delivery and edge computing, Datadog has it in observability. But the market is now differentiating between companies that are essential versus those that are nice to have. Luna: So what's the tell? Is it revenue growth, profit margins, or something else? Lucas: I'd say it's a combination of durable growth and expanding margins. Companies that can grow revenue while improving profitability are the ones that will weather this rotation. CrowdStrike's margins have been expanding, which is a good sign. But the market is also paying attention to valuation — after a big run, the price to earnings ratio gets stretched. Luna: And that's why we're seeing these sharp drops — it's not that the businesses are broken, it's that the valuation got ahead of the fundamentals. Lucas: Exactly. The same thing happened with Cloudflare and Datadog. Their businesses are fine, but the stocks had run up too much, too fast. The market is forcing a reset — not a crash, just a more rational repricing. Luna: But let's step back — the S&P 500 is still near record highs, and it's down less than one percent this week. How much does this software weakness matter for the broader market? Lucas: It matters less than you'd think, because tech is a smaller weight in the index than it was in 2021. Financials, industrials, energy — those sectors have been carrying the market. So a software selloff can be absorbed without dragging everything down. Luna: So the bull market is broadening beyond tech — earlier episodes talked about mid caps and small caps leading. Is that still happening? Lucas: Yes, and the recent data confirms it. The Russell 2000 is down this week, but it's been outperforming the S&P 500 over the past few months. And the NYSE Composite is basically flat, which suggests breadth is holding up. The market isn't just a few mega-cap stocks anymore. Luna: But the economic backdrop is slowing — real GDP growth was just one point five percent annualized in the second quarter, down from two point one. How does that square with a bull market? Lucas: That's the paradox of this cycle. The economy is slowing, but corporate profits are still strong. And with the Fed holding rates steady around three point six three percent, there's no immediate threat of a policy mistake. The market is looking through the soft patch and seeing earnings resilience. Luna: So the software slump is almost a healthy sign — it means the market is being more discerning, not just throwing money at anything with a.com. Lucas: Precisely. Look at the action in innovation ETFs like ARK Innovation — it's up five and a half percent this week while mega-cap growth is down. That tells me money is rotating into beaten-down areas, not fleeing risk entirely. Luna: So what's the takeaway for investors? How should they position themselves in this kind of market? Lucas: I think the takeaway is to avoid the extremes. Don't chase the hottest momentum stocks, but don't abandon quality names just because they're pulling back. Focus on companies with strong balance sheets, real cash flows, and a competitive moat. And be aware that the market will have these violent rotations — they're normal. Luna: But what about the small-cap rotation? Is that sustainable, or is it just a temporary shift? Lucas: It could be sustainable if the economy avoids a recession. Small caps are more leveraged to domestic growth, and if inflation stays contained and the Fed starts cutting later this year, they could benefit disproportionately. But it's a bet on the macro outlook, not a sure thing. Luna: And with the Fed holding rates steady, is there any pressure building for a cut? Lucas: The futures market is pricing in a decent chance of a cut by December, but the Fed has been patient. They want to see more evidence that inflation is sustainably heading to two percent. The fact that they're not rushing is actually supportive for markets in the long run. Luna: So circling back to CrowdStrike — is this a buying opportunity or a warning sign? Lucas: It depends on your time horizon. For long-term investors, a ten percent pullback in a mission-critical security company with strong growth is often a decent entry point. But for short-term traders, it could keep sliding if momentum turns negative. I'd say it's a stock to watch, not to panic about. Luna: And what about the broader software sector? Is the weakness concentrated or widespread? Lucas: It's fairly widespread among the high-multiple names, but not uniform. Companies with lower valuations and solid cash flow, like some of the legacy tech names, are holding up better. The selloff is really about valuation compression, not a collapse in fundamentals. Luna: So what should a typical listener do with this information? Is there an actionable step? Lucas: I'd say review your portfolio for concentration risk. If you've been riding the mega-cap tech wave, consider trimming some winners and adding to areas that haven't caught up — like mid caps or value stocks. And don't react to a single week's move; focus on the long-term trend. Luna: That sounds like solid advice. And it's reassuring to know that the bull market isn't on its last legs just because a few software stocks stumbled. Lucas: Right. The market is resilient because the fundamentals are still strong. As long as earnings grow and the Fed doesn't make a policy error, this bull can keep running — it's just going to be a bumpier ride. Luna: And that's the conversation for today. Thanks for being part of it. Lucas: Yeah, and remember, if you enjoyed this, consider supporting us at buy me a coffee dot com slash fexingo. It truly helps us keep going. Until next time.