Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why Cloudflare and Palantir Are Falling in a Bull Market
Transcript
- Lucas: Luna, the S&P 500 is sitting at 7,431, the Dow just closed at 51,202, and the Russell 2000 is up over three percent in the past five days. By any normal measure, this is a strong bull market. Luna: And yet, Cloudflare is down nearly eight percent in that same window. Palantir off six percent. Lucas: Exactly. So the question is: what is the market actually rewarding right now? Because it's clearly not every stock. The Russell 2000 jumping three percent tells you money is flowing into small caps — real economy stuff. But the high-growth, high-multiple names are getting left behind. Luna: We saw this in the growth ETF numbers too. IWF and VUG both dropped about one point one percent over the last five days. So it's not just one or two companies — it's a pattern. Lucas: Right. And I think the macro data gives us a clue why. Real GDP growth just annualized at one point six percent, up from a paltry zero point five percent. The economy is actually accelerating a bit. The fed funds rate is holding steady at three point six two percent. So we're not in a panic-cut scenario. The market is saying: 'Show me earnings now, not promises for 2028.' Luna: That's a big shift from 2020 and 2021, where the market would pay any price for growth. Now it's like, if you don't have profits today, you better have a really good story. Lucas: And the story for Cloudflare and Palantir — both great companies, don't get me wrong — is that they're still spending heavily to capture market share. Cloudflare's free cash flow margin is improving, but it's not where value investors want it. Palantir's had a massive run already, so it's vulnerable to profit-taking. Luna: Actually, speaking of Palantir, I was looking at their recent government contracts. They just renewed a big one with the Army, but the stock still fell. So it's not about bad news — it's about relative attractiveness. Lucas: Precisely. When the Russell 2000 is ripping, money rotates out of the high-beta growth names that had already run up. It's a classic rotational bull market. The Dow is up zero point eight percent in five days, the NASDAQ is down zero point two. That divergence is the story. Luna: So where does that leave the average retail investor who's been holding growth ETFs and wondering why their portfolio isn't keeping up with the headlines? Lucas: That's a really good question, and honestly, if this conversation has helped you think about your own portfolio a little differently, that's exactly what we're here for. You know, we keep Bull Market Conversations completely ad-free, and listener support is what makes that possible. If today was worth a coffee to you, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep the show independent and focused on what matters. But back to the rotation — what do you think is the catalyst that sustains this move into small caps? Lucas: I think it's the GDP data. Real economic acceleration benefits smaller companies that are domestically focused. They have more operating leverage. If growth stays at one point six percent or even ticks higher, small caps could keep outperforming. The Russell is still well below its all-time highs in real terms, so there's room. Luna: Meanwhile, you've got the SpaceX IPO sucking up a ton of retail attention. That's a different kind of growth story — but it's pre-profit, pre-revenue in the traditional sense. It's almost like a throwback to the 2021 mentality. Lucas: It is, but SpaceX has actual revenue and a moat. The difference is that SpaceX is a private company coming public at a massive valuation — seventy-five billion dollars reportedly. Retail investors are clamoring for allocation. But the IPO allocation for retail is being cut to the low twenty percent range, according to reports. So the frenzy might not translate into easy profits. Luna: That's a good cautionary note. Because the same people chasing SpaceX might be the ones holding Cloudflare and wondering why it's down. Lucas: Right. And look, I'm not saying growth is dead. But in this phase of the cycle, the market is discriminating. Companies with positive free cash flow and reasonable valuations are getting rewarded. Companies that are still in investment mode are being punished until they show a path to profitability. Luna: What about CrowdStrike? It's up three point six percent in the same window. That's a growth company, but it's profitable. So the market is making distinctions even within cybersecurity. Lucas: Exactly. CrowdStrike has strong recurring revenue and expanding margins. Cloudflare is still burning cash relative to its revenue base. So the market is saying, 'We'll pay up for growth if you've got the earnings to back it up.' That's a healthy sign, actually. Luna: So if I'm an investor listening right now, what's the actionable take? Should I sell my growth stocks and buy small caps? Lucas: I wouldn't say sell everything. But I would look at your holdings and ask: does this company have positive free cash flow? Is it growing revenue at a rate that justifies its multiple? If the answer is no, and the stock has already run up a lot, maybe take some profits. The Russell 2000 rally might have more room, but chasing any single sector is risky. Luna: And keep an eye on the Fed. The fed funds rate is flat at three point six two, but if the economy accelerates further, rate cuts get pushed out. That could hit growth stocks again. Lucas: Absolutely. The market is pricing in a 'higher for longer' scenario. The interest on reserve balances is three point six five. That's still restrictive. Growth stocks are sensitive to that because their future cash flows get discounted more heavily. Luna: So the bottom line: this bull market is real, but it's not uniform. The winners are shifting. Lucas: Exactly. And that's what makes it interesting. It's not a mindless rally — it's a selection process. The market is effectively saying, 'Prove it.' And the companies that can prove they have a viable business model today are the ones getting the capital. Luna: Alright, that's a good note to end on. Thanks, Lucas. Lucas: Thanks, Luna. Talk to everyone next time.