Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How The S&P 500 Rallied On Weak Growth
Transcript
- Lucas: It is strange, isn't it? We look at the S&P 500 sitting at seven thousand seven hundred twenty-three points today, up half a percent over the last five days, and then we look at real GDP growth slowing down to just two point two percent annualized. Most people would say that combination makes no sense. Luna: Exactly. You would expect the market to be sweating over slower growth, but instead, it is basically ignoring the macro drag entirely. Lucas: And here is the kicker. The Nasdaq is up one point four percent in that same window, while the Dow is actually down six-tenths of a percent. So we are not seeing a broad-based rally driven by economic optimism. We are seeing a very specific type of strength. Luna: Right, so it is not about the economy getting better; it is about where the money is going. It is concentrated. Lucas: Concentrated and defensive in a weird way. Let us look at the recent headlines from Friday. Traders are now pricing out any chance of a Federal Reserve rate hike in October after that weak jobs report came out. That changes the entire calculus for these large-cap tech stocks. Luna: So they are buying because rates are staying high but not higher? That feels like a narrow margin for error. Lucas: It is exactly that. The effective Fed funds rate is sitting at three point seven five percent, and daily rates are holding flat near three point eight eight percent. Investors have decided that the worst of the tightening cycle is over. They are not betting on lower rates yet; they are just betting that the pressure has stopped increasing. Luna: But does that justify a market this high? Seven thousand seven hundred seems like a lot of room to run if the underlying growth is only two point two percent. Lucas: That is the million dollar question. And the answer lies in who is actually driving those gains. Look at Shopify up five point one percent, CrowdStrike up four point two percent, and Datadog up three point two percent. These are companies with massive cash flows or massive growth trajectories that can withstand a thirty-eight basis point interest rate environment. Luna: Okay, so the big winners are the ones with strong balance sheets or explosive growth, while the rest of the market is just watching from the sidelines. Lucas: Precisely. And notice what is happening with small caps. The Russell 2000 is up only half a percent. Compare that to the Nasdaq being up one point four percent. The divergence is widening. Small businesses still feel the pinch of borrowing costs, while the mega-caps are essentially immune right now. Luna: It feels like we are in a bubble of confidence. If inflation ticks back up next month, all this could reverse overnight. Lucas: That is the risk. But right now, the data supports this view. Nominal GDP is at thirty-two trillion dollars, which is solid, even if real growth is cooling. Companies are still generating revenue. They are just being more careful about expansion. Luna: So you are saying we should focus on quality over breadth? Because breadth is clearly lagging. Lucas: I am saying that the market is telling us something very clear. It does not care about the headline GDP number as much as it cares about corporate profitability in a stable rate environment. And right now, stability is the most valuable commodity. Luna: Stability buys patience. And patience is what these tech leaders are selling to investors. Lucas: Let us drill into one specific case. Take NVIDIA. While we do not have their exact earnings per share figure for this quarter in front of us, their stock trades as N-V-D-A and it continues to command premium valuations because the AI infrastructure spend is real. It is not speculative anymore. Luna: But isn't that dangerous? When everyone agrees on the narrative, the downside gets crowded. Lucas: Crowded trades always carry risk. But look at the volume. The money is flowing into these names. It is not trickling down to the industrial sector or the consumer discretionary space just yet. Nike is moving, but it is not leading the charge. Luna: So the leadership is still firmly in the hands of the technology sector. Nothing has shifted fundamentally. Lucas: Not yet. And that is why I think we are going to see this pattern persist through October. As long as the Fed holds the line on rates, these large-cap tech stocks will continue to act as the anchor for the index. Luna: What happens when the jobs report comes in hot again? Then the fear returns. Lucas: Then we get volatility. But remember, the VIX is generally suppressed when liquidity is ample. Right now, the liquidity is ample enough to support these prices, even if the growth story is muted. Luna: It is a fragile peace. But it is the peace we have to work with. Lucas: Absolutely. And for listeners managing portfolios, this means avoiding the temptation to chase the laggards. Stick with the leaders until the trend breaks. Luna: Or wait for the rotation. Because eventually, it has to happen. Lucas: Eventually. But timing that rotation is the hardest part of investing. For now, let us keep our eyes on the Fed and the earnings reports. Luna: Agreed. Let us see if the data holds up next week. Lucas: If our money conversations have helped you think about a decision differently, the way these stay ad-free is listener support. You can buy me a coffee dot com slash fexingo. It keeps the research sharp and the ads away. Luna: Yeah, it really helps keep the show running smoothly without interrupting the flow. Lucas: Thanks for supporting the network. Now, let us get back to the numbers. Luna: Right. Back to the divergence. Lucas: So, looking ahead, if the S&P 500 pushes toward seven thousand eight hundred, what sectors do you think finally get a break? Luna: I would bet on industrials. If the economy stabilizes, manufacturing and logistics need to catch up. Lucas: Interesting. So you are looking for a rotation into value once the tech plateau hits. Luna: Exactly. Value is cheap for a reason. Sometimes it is just waiting for permission to move. Lucas: Permission often comes in the form of a softer jobs report. Which brings us full circle to the Fed. Luna: Which brings us full circle. It is a loop, Lucas. A very expensive loop. Lucas: But a profitable one for those who understand the rhythm. We will see where the data takes us next. Luna: Until then, keep your positions tight and your expectations realistic. Lucas: Good advice. Thanks for listening.