Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why the Bull Market Loves This Quietly Booming ETF
Transcript
- Lucas: So the S&P 500 closed at another record on Friday, up about eight tenths of a percent on the week, and yet the small-cap index fell nearly one percent. That divergence is the story of this bull market right now, but I want to zoom in on something else today. Luna: Okay, I'm listening. What's the something else? Lucas: There's an ETF that's quietly beating the S&P 500 this year, and it's not a leveraged fund or some niche thematic play. It's the iShares Core S&P 500 Growth ETF, which tracks large-cap growth stocks. It's up about 19 percent year-to-date, while the broader index is up around 14 percent. Luna: So basically the growth side of the market is doing the heavy lifting. But isn't that just because of a few mega-cap tech names? I thought we talked about that in episode 156, the haves and have-nots. Lucas: Right, and that's the nuance. It's not just the usual suspects like Apple and NVIDIA. Sure, they're in the fund, but what's interesting is that the growth ETF is outperforming even with some of the mega-caps taking a breather. For example, CrowdStrike jumped 14 and a half percent this week alone, and that's a growth stock, but it's not exactly a mega-cap. Luna: Fourteen and a half percent in a week. That's a big move. Did something specific happen? Lucas: Not that I can see from the headlines, which is kind of the point. When a stock moves that much without a news catalyst, it tells you there's a lot of momentum money chasing the same theme. Cloud stocks are having a moment, too — Cloudflare and Datadog are both up five to seven percent on the week. Luna: So it's not just AI chips anymore. It's the whole growth complex. But what's driving that? Is it the Fed? I saw that the September decision is basically a coin flip. Lucas: Exactly. The market is pricing in about a fifty-fifty chance of a rate cut next month, and that's gold for growth stocks. Lower rates make future earnings more valuable, so investors are willing to pay up for companies with long runways. That's why the growth ETF is outperforming, while value and small caps are lagging. Luna: But wait, the Fed funds rate is still at 3.63 percent. That's not exactly low. Are we really expecting a cut that soon? Lucas: It's a coin flip, but the odds have been shifting. Last week, after some comments from potential Fed chair nominee Kevin Warsh, the market started pricing in a higher chance of a hike. Then it swung back. This is a market that's hypersensitive to every Fed utterance, and the growth trade is riding that volatility. Luna: So if the Fed cuts, growth keeps running, but if they hike, we could see a sharp rotation. That feels fragile. Lucas: It is fragile, but that's the bull market we're in. Let me put a number on it: the S&P 500 is up 0.8 percent on the week, but the Nasdaq is up 1.6 percent. The Dow, which is more value-heavy, is basically flat. That gap is the whole story. Luna: And yet small caps are down. So the rally isn't broadening out — it's narrowing further into growth. Lucas: Right. And that's where I want to challenge the common narrative. Everyone talks about the 'broad market' rally, but the reality is that a handful of large-cap growth stocks are carrying the indexes. The equal-weight S&P 500 is actually down over the past month. So if you're invested in a plain vanilla index fund, you're getting the top-heavy version, not the true breadth. Luna: That's a really good point. So what's the takeaway for listeners? Should they be piling into growth ETFs? Lucas: Not necessarily. The thing is, momentum works until it doesn't. And we've seen this before — in the late 90s, growth was all anyone wanted, and then the dot-com bust happened. But we're not there yet. The fundamentals are different. These companies are actually generating cash, not just promising future revenues. Luna: But aren't valuations getting stretched? I mean, the growth ETF is up 19 percent, and some of these stocks are trading at huge multiples. Lucas: Valuations are elevated, no question. But here's the thing: the market is pricing in a soft landing, where the Fed cuts rates just enough to avoid a recession, and earnings keep growing. If that scenario plays out, growth stocks can sustain these multiples. The risk is if the Fed has to tighten again because inflation reaccelerates — that's the tail risk. Luna: Speaking of tail risks, I saw that corn and wheat prices just hit their highest levels in three years. That could feed into inflation, right? And then the Fed might not cut. Lucas: It's a factor. Commodity prices are up, and that's a potential headwind. But the market seems to be looking through it, at least for now. The latest CPI and PPI data have been relatively benign, so the inflation scare hasn't materialized in the data yet. Luna: So we're back to watching the data. It feels like every week there's a new reason to doubt the rally, yet it keeps climbing. Is that just how bull markets work? Lucas: That's exactly how they work. They climb a wall of worry. And that's why I find this growth ETF story so compelling — it's a mirror of the market's psychology right now. Investors are willing to pay a premium for growth because they're betting on the future, not the present. Luna: And that's what you're supposed to do in a bull market, right? Bet on the future. But it's a fine line between confidence and complacency. Lucas: Exactly. And that line is where we earn our keep as investors. We have to distinguish between a genuine growth trend and a speculative bubble. So far, the earnings are backing up the rally, but we have to keep an eye on the margins. Luna: You know, before we go deeper into the fundamental analysis, I want to bring up something that's been on my mind. We've been having these conversations for over a hundred episodes now, and one thing that's consistent is that we don't run ads. That's a deliberate choice. Lucas: It is. We want these episodes to be as useful as possible, without interrupting the flow with promotions. If our money conversations have helped you think about a decision differently — maybe you rebalanced your portfolio, or you finally checked your 401k fees — that's the goal. Luna: And the way to keep it that way is to support the show directly. If you're able, the link is buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash f-e-x-i-n-g-o. It's a simple way to keep us ad-free. Lucas: No pressure, honestly. Even just telling a friend about the show helps. But yes, if you appreciate the ad-free approach, that's where you can help. Now, back to the growth versus value debate — I want to look at a specific example. Luna: Okay, hit me with the example. Lucas: Let's look at a company like Shopify. It's up 2.1 percent this week, but it's been a massive winner over the past year. Shopify is a classic growth stock — it's in the ETF we're talking about. But its earnings growth has been accelerating, and it's actually profitable now. Luna: So Shopify is a case where the growth narrative is backed by actual numbers. That's what separates it from, say, a speculative AI startup that's burning cash. Lucas: Exactly. And that's the kind of distinction investors need to make. The growth ETF isn't a blanket bet on everything that's fancy — it's a bet on companies that are growing revenue and earnings at an above-average rate. The fund screens for that. It's not just momentum for the sake of momentum. Luna: So are you saying that the growth ETF is a smarter bet than just buying the S&P 500? Lucas: It depends on your time horizon and risk tolerance. Over the past decade, growth has beaten value by a wide margin, but there are periods where value outperforms. The key is to understand what you're owning. If you buy the growth ETF, you're making a bet that these trends continue. If you buy the total market, you're getting a bit of everything, but right now that means a heavy dose of the same mega-caps. Luna: So it's not necessarily about picking one over the other, it's about understanding the underlying exposure. That's the real lesson here. Lucas: Exactly. And that's what I love about this conversation — it's not about predicting the next big thing, it's about being clear about what you already own. Because the moment you know that, you can make better decisions. Luna: And better decisions are what we're all after. So, as we wrap up, what's the one thing you want listeners to take away from this episode? Lucas: I think it's that the bull market is real, but it's not broad. The growth ETF's outperformance is a signal that investors are rewarding companies with strong earnings growth and a clear path to the future. That's not a bad thing — it's how markets work. But it does mean you need to be intentional about where you put your money. Don't just assume the index is diversified; know what's inside it. Luna: That's a solid note to end on. Thanks for joining us on Bull Market Conversations. We'll be back next week with another deep dive.