Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why Growth Stocks Are Getting Crushed in a Broad Bull Market
Transcript
- Lucas: So the headline numbers this week look pretty benign — the Dow is down maybe four-tenths of a percent over the last five trading days, the NYSE composite barely budged. But underneath that surface, there is a real chasm opening up. Luna: You're talking about the NASDAQ, right? Down over five percent in the same period. Lucas: Exactly. The NASDAQ Composite lost 5.1 percent in five days. That's not a blip — that's a rotation. And the most painful part is concentrated in the high-growth, high-multiple names that led the rally for the last eighteen months. Luna: I was looking at the numbers earlier. Shopify dropped almost 12 percent in a week. CrowdStrike down over 14. Datadog down 15.6. Palantir — same, 15.6 percent. That's not profit-taking, that's a stampede. Lucas: Right. And the ARKK Innovation ETF, which is basically a basket of those kinds of names, fell 8.3 percent. Compare that to the Dow's minus 0.4 — it's like two completely different markets are happening at the same time. Luna: So what's the catalyst? The jobs report on Friday was hot — 272,000 nonfarm payrolls, well above expectations. That pushed the narrative that the Fed isn't cutting anytime soon. Lucas: That's the big one. The fed funds rate is at 3.63 percent, and Chair Warsh made clear this week that with the labor market still tight and inflation sticky around 3 percent, they're in no rush to ease. For growth stocks, higher for longer rates are kryptonite — their future cash flows get discounted more heavily. Luna: It's also a valuation reset. The median growth stock in the Russell 3000 was trading at 32 times forward earnings — that's expensive by any historical measure. When the macro backdrop shifts, those multiples compress fast. Lucas: And what's interesting is the market is not panicking broadly. The S&P 500 is down 2.8 percent on the week, which is uncomfortable but not a crash. The Dow is basically flat. Money is moving out of the high-beta names and into value, industrials, financials — the stuff that benefits from a strong economy. Luna: Which is exactly the opposite of what we saw in April and May. Then, it was all about AI and growth. Now, the market seems to be saying: 'Show me earnings today, not promises for 2028.' Lucas: And the data backs that up. The IWF — the iShares Russell 1000 Growth ETF — fell 4.7 percent in five days. The value counterpart, IWD, was basically flat. That's a 4.7 percentage point spread in a single week. Luna: Is this just a June swoon, or does it signal something deeper? Because the bull market is still intact — the S&P is at 7,384, the Dow at 50,867. We're not talking about a bear market. Lucas: No, this feels like a rotational correction within a bull market. The economy is still growing — real GDP grew at 1.6 percent annualized in the first quarter, up from 0.5 percent previously. Corporate profits are solid. But the leadership is shifting. Luna: You know, if someone told me a year ago that in mid-2026 we'd see the Dow above 50,000 and the NASDAQ down 5 percent in a week, I would have laughed. But here we are. Lucas: That's the nature of this market — it's been very narrow at times, very broad at others. Right now, the broadening is happening through selling in the high-growth names and buying in the laggards. That's healthy, ultimately, but it's painful if you're holding the wrong stocks. Luna: And speaking of which — if our money conversations have helped you think about a decision differently, or just made these market moves a little less confusing, there's a simple way to support the show. It's ad-free, listener-supported, and every bit helps. Lucas: Yeah, you can find us at buy me a coffee dot com slash fexingo. That's 'buy me a coffee dot com slash fexingo.' No pressure at all — just a way for folks who get value from the show to keep it going. Luna: Exactly. And honestly, even just sharing an episode with a friend goes a long way. Okay — back to the rotation. Lucas, you were saying this might be a multi-week process? Lucas: I think so. Look at the technicals — the NASDAQ broke below its 50-day moving average on Wednesday, and the 100-day is around 24,800. That's another 3.5 percent downside from here. If the selling continues, the next support level is around 24,500. Luna: And meanwhile, the Dow is still above its 20-day. That's a clear divergence. Lucas: Right. So the question for investors is: do you follow the momentum into value, or do you see this as a buying opportunity in growth? I think the answer depends on your time horizon. Luna: For a long-term holder, selling growth at these levels might be panic. But for a trader, the trend is your friend — and right now, the trend is against high-beta growth. Lucas: Exactly. And we've seen this movie before — in late 2021, growth stocks got crushed while the Dow held up. That was the start of a nearly 12-month bear market in growth, even though the broader market only corrected modestly. Luna: So history says this could run for a while. But there's also a case that this is a mid-cycle rotation, not the end of the cycle. Lucas: I lean toward the rotation view, for a few reasons. One, the economy is still strong — the jobs report was hot, GDP is accelerating, and credit conditions are stable. Two, the Fed is not tightening further — they're just holding. That's a very different environment from 2022 when rates were going up 75 basis points at a time. Luna: And three, valuations in the growth space, while elevated, are not as extreme as they were in 2021. The ARKK ETF, for example, is still 60 percent below its 2021 high. Lucas: That's a key point. The froth has been largely absent this cycle — until maybe the last few months. So while growth stocks are getting hit, the damage might be more contained. Luna: What about the headline this week about China poaching AI talent? Could that shift the AI narrative enough to weigh on names like Nvidia and Palantir? Lucas: It's a long-term concern, but I don't think it's driving this week's sell-off. The catalyst is clearly macro — the hot jobs report and the repricing of Fed expectations. The AI narrative is still intact, but the marginal buyer of these stocks is rate-sensitive. Luna: So if the Fed actually cuts later this year — and the market is pricing in a 40 percent chance of a cut by September — does that reverse the rotation? Lucas: It could. Growth stocks are essentially long-duration assets. If the 10-year Treasury yield, which is hovering around 4.2 percent, starts to fall, growth stocks should rally hard. But that requires either a softer economy or a dovish Fed pivot — neither of which is guaranteed. Luna: So for now, the playbook seems to be: value and cyclicals for the near term, and you buy growth on the dip if you have a multi-year horizon. Lucas: That's where I land. And I'd add: don't try to catch a falling knife. Wait for the NASDAQ to stabilize, for volume to dry up on down days, before stepping in. The rotation could have another leg or two. Luna: Good advice. And if listeners want to track this divergence themselves, the key indices to watch are the Dow versus the NASDAQ — if that spread continues to widen, the rotation is still in play. Lucas: Exactly. And keep an eye on the VIX — it's around 18 right now, which is elevated but not panicked. If it spikes above 25, that's a different story. But for now, it's a rotational correction, not a crash. Luna: Alright. So the takeaway: the bull market is alive, but it's changing horses. Growth is getting thrown, and value is taking the reins. Lucas: Well said. Thanks, Luna. And thanks to everyone listening. We'll be back next week with more market conversation.