Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / The Government Stake Trade Is Wall Street's Newest Bet
Transcript
- Lucas: So there's a headline from CNBC on Friday that I keep coming back to: 'Which company will the U.S. government take a stake in next? Here's what traders think.' It's not a joke — this is an actual bet people are placing. Luna: Wait, like, traders are speculating on which company the government will buy equity in? That sounds like something out of 2008, but for a different reason. Lucas: Exactly. But it's not about bailouts this time. Think about it: the government has been taking stakes in companies deemed critical — think advanced semiconductors, rare earths, maybe even defense tech. The chatter is that with the APEC meetings showing the U.S. and China still far apart on trade, the government might want to secure supply chains by owning a piece of key players. Luna: Right, and you've got the Russell 2000 up 3.4% in the last five days. Small caps are leading this rally. So are traders betting that a government stake would turbocharge a smaller company's growth? Lucas: That's the angle. Look at names like Palantir — PLTR — up 1.3% in five days, but it's been a massive year. Or CrowdStrike, CRWD, up over 7% in just the last week. These are companies with deep government ties already. The bet is that the government formalizes that relationship with an equity stake. Luna: But isn't that a bit dystopian? I mean, the government owning a chunk of a surveillance or cybersecurity company? That changes the incentive structure. Lucas: It does. And that's exactly why traders are excited and also nervous. On one hand, a government backstop means stable revenue, maybe even guaranteed contracts. On the other hand, it could crowd out private innovation. But the market doesn't care about philosophy right now — it cares about momentum. Luna: Let's talk about that momentum. The S&P 500 is at 7,473, up 1% in five days. The Dow is at 50,580, up 1.8%. This bull market has legs, but it's narrow. The government stake trade feels like a way to play defense while still getting growth. Lucas: Exactly. And the Fed isn't moving. The effective federal funds rate is flat at 3.64%. So you've got a steady rate environment, GDP growth at 2% annualized, and real GDP up. That's a Goldilocks backdrop for risk-taking. But the trade war overhang from APEC means you want some government protection in your portfolio. Luna: So who's on the list? Besides Palantir and CrowdStrike, what other names are traders circling? Lucas: Well, you've got the data center REITs we talked about in episode five, but also some biotech firms involved in pandemic preparedness. And there's speculation around companies like Shopify — SHOP — even though it's more e-commerce. The logic is that if the government wants to onshore critical digital infrastructure, Shopify's logistics platform could be a target. Luna: Interesting. But Shopify is up only 0.6% in five days. That doesn't scream 'government takeover premium' to me. Lucas: No, but the trade isn't about the past week — it's about the narrative. The CNBC article is signaling that Wall Street is starting to price in this possibility. If you believe the government will take a stake, you buy before the announcement. That's the bet. Luna: And if you're wrong? You're holding a stock that might have an artificial ceiling because the government could step in at a lower price. Lucas: That's the risk. But look, this is a bull market. The Russell 2000 is up 3.4% in a week. Investors are hungry for the next catalyst. The government stake trade is that catalyst for now. It's a story, and stories drive prices in the short run. Luna: Speaking of stories driving prices, it reminds me of why we keep this show ad-free. We can talk about these trades without worrying about sponsors influencing the narrative. Lucas: That's actually a good point. Our independence lets us explore angles like this — even the speculative ones — without a conflict. If you find that valuable, listeners can support the show at buy me a coffee dot com slash fexingo. It helps us keep doing deep dives like this one. Luna: Yeah, every contribution goes straight to production. No middlemen. And it keeps us free to question the conventional wisdom. Lucas: So back to the government stake trade. The other angle here is the legal landscape. The CNBC article mentions a 'murky legal landscape' for these investments. The government taking equity isn't straightforward — there's the issue of valuation, antitrust, and even constitutional questions. Luna: Right, because if the government takes a stake, it's essentially nationalizing a part of the company without full ownership. That could create a hybrid entity that's hard to regulate. Lucas: Exactly. And yet, traders are undeterred. The headline I mentioned is from Friday, and since then, we've seen continued interest in defense and tech names. CrowdStrike's 7.2% weekly gain is partly that trade. Luna: But CrowdStrike already has government contracts. Would an equity stake change much? Or is it more about signaling that the government is doubling down on cybersecurity? Lucas: I think it's signaling. The government taking a stake would say, 'We are all-in on this company's technology.' That would make it harder for competitors to unseat CrowdStrike in federal contracts. It's a moat-widening move. Luna: And that's exactly the kind of certainty the market loves in a bull market. But let's zoom out. The broader market — the NYSE composite, the NASDAQ — all up. The NASDAQ is at 26,344. That's a lot of digits. How much of this rally is driven by this government stake narrative versus fundamentals? Lucas: Hard to quantify, but I'd argue the narrative is a tailwind, not the main engine. Real GDP growth at 2% is solid. Earnings are holding up. The Fed is steady. Those are the fundamentals. The government stake trade is a subplot — but in a bull market, subplots can become major themes. Luna: So if I'm an investor, how do I play this? Do I buy the names being talked about, or do I look for companies that might be overlooked? Lucas: I'd look at the overlooked ones. The obvious names like Palantir and CrowdStrike already have a premium baked in. But there are smaller defense contractors, or even logistics companies that could be critical for supply chain resilience. That's where the Russell 2000 opportunity is. Luna: And with the Russell up 3.4% this week, it's already moving. So maybe the smart money is already in those names. Lucas: Possibly. But the CNBC article suggests traders are still speculating. That means there's still room for the trade to run. Of course, it could also mean we're late. That's the challenge — you never know if you're early or early to the exit. Luna: Speaking of exit, what about the Fed? If rates stay flat, that's good for growth stocks. But if the trade war escalates, the Fed might have to cut. How does that affect the government stake trade? Lucas: If the Fed cuts, that's a boost for all equities, but especially for the high-growth names that might be government targets. Lower rates make the future cash flows from those government contracts more valuable. So the trade could get a double boost: narrative plus monetary policy. Luna: So it's a bet on both government intervention and dovish Fed. That's a crowded trade if I've ever seen one. Lucas: It is. And crowded trades can unwind fast. But for now, the momentum is with the bulls. The Dow at 50,580, the S&P at 7,473 — these are all-time highs. In that context, the government stake trade is just one more reason to be optimistic. Luna: Optimistic but cautious. I think that's the right note. Lucas, thanks for unpacking this. I feel like I have a better handle on what's driving some of these names. Lucas: Glad to help. And remember, if you want to support independent analysis like this, check out buy me a coffee dot com slash fexingo. It really does make a difference. Luna: Alright, that's our show. Until next time, keep your eyes on the narratives — but don't forget the fundamentals.