Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why the Bull Market Is Loving Momentum Stocks Again
Transcript
- Lucas: So the S&P 500 is sitting just below seven thousand seven hundred and fifty, essentially at record highs, but the real story this week isn't the index itself. It's the stuff inside it that's moving fast. Luna: You mean the momentum trade is back in a big way. ARK Innovation is up over four percent in five days, and Palantir's up nine percent. Lucas: Exactly. And that's after a period where the market had gotten pretty selective – we've talked about that a lot in recent episodes. But this week, the flavor is distinctly high-beta, high-momentum. Look at Shopify, up nearly twenty-five percent in five days. That's not a slow grind; that's an explosion. Luna: Right, and it's not just one name. CrowdStrike is up almost seven percent, and even the small-cap Russell is down, so it's not broad-based – it's very targeted. Lucas: Yeah, the Russell's actually down about seven-tenths of a percent over the week, so the momentum is not lifting all boats. It's concentrated in these names that have strong narratives – AI, cloud, disruptive growth – and it's happening while the economic data is getting a bit softer. Luna: Soft is one way to put it. Real GDP growth slowed to one point five percent annualized, down from two point one percent. That's a meaningful deceleration. Lucas: And yet the Fed is basically on hold. Fed funds at three point six three percent, unchanged. So you have a market that's betting the Fed won't hike, maybe even cuts later, and that's fuel for growth stocks – the longer duration stuff. Luna: So the playbook is: rates stay put, growth decelerates a little, and investors pile into the names that can grow regardless. Makes sense, but it feels risky. Lucas: It is risky, and the counterexample is sitting right there in the data. Datadog is down ten point seven percent this week. That's a cloud monitoring company with a great story, but it got hit hard. So the market is not just buying everything that moves; it's picking winners and losers within the same trade. Luna: What's driving that pickiness? Is it earnings, or just sentiment? Lucas: A lot of it is expectations. When you're paying high multiples, you need to deliver. Datadog's growth has been slowing, and the market punished it. Meanwhile, Shopify's numbers were strong, and the market rewarded it. That's the momentum game – it's as much about surprises as it is about direction. Luna: So momentum is really just a bet on continued surprises, not just continued growth. Lucas: Exactly. And that's why I think this week's rotation is interesting. It's not just a risk-on move; it's a selective risk-on move. And that's a sign of a mature bull market, not a frothy one. Luna: Let's talk about the specific names. Palantir is up nine percent – that's on top of a huge run already. What's the story there? Lucas: Palantir is the poster child for AI momentum. They've been winning government contracts, and their commercial business is picking up. The market is pricing in a lot of future growth, and so far they've been able to justify it with actual numbers. But at this valuation, there's no room for error. Luna: And Shopify's twenty-five percent pop – that's a huge move for a company that size. Lucas: Yeah, it's a big e-commerce platform, and they're seeing strong adoption of their AI tools. Also, they've been expanding into offline payments, which opens up a bigger market. The market liked that enough to send the stock flying. Luna: So when you see moves like that, do you chase them? Lucas: That's the million-dollar question. And the honest answer is: it depends on your time horizon and your risk tolerance. Momentum can keep running, but it can also reverse violently. The key is to not get caught up in the emotion of a big one-day move. Instead, think about whether the underlying business can sustain that growth. Luna: Right, so it's back to fundamentals, even in a momentum trade. Lucas: Exactly. And that's what separates professional investors from retail traders – the ability to look past the chart and ask, what is this company actually worth? Now, this conversation is a lot more fun when you can have it over a good cup of coffee. Luna: Ha, true. And actually, if today's conversation was worth a coffee to you, we'd love if you'd consider supporting us. It's buy me a coffee dot com slash fexingo – that's what keeps this show ad-free and independent. Lucas: No pressure at all, but it does help us keep doing what we love, and we appreciate everyone who's already supported us. Back to the momentum trade – one thing I want to touch on is how this rotation is showing up in the broader market. Luna: You mean the fact that the Dow is actually down half a percent while the S&P is up? Lucas: Yeah, that's a clear sign that this is not a broad rally. The Dow is more value-heavy, and it's lagging. The NASDAQ is basically flat, but that's because the mega-caps are offsetting weakness elsewhere. The real action is in these mid-cap and high-growth names. Luna: So what does that mean for the average investor? Should they be shifting their portfolio toward momentum? Lucas: I wouldn't say shift everything. But it's worth considering if you have a long-term horizon. The problem with momentum is that it can reverse quickly, and if you're not paying attention, you can get burned. A better approach is to have a diversified portfolio that includes some exposure to these high-growth names, but also has value and international stocks as a buffer. Luna: So basically, don't put all your eggs in one basket, even if that basket is on fire. Lucas: Exactly. And speaking of baskets, let's look at the ARK Innovation ETF. It's up four percent this week, but it's still a fraction of its 2021 highs. So even in a momentum rally, it's not necessarily back to the moon. It's a reminder that these trades can take a long time to play out. Luna: So is this a sustainable shift back to growth, or just a summer fling? Lucas: That's the question. The economic backdrop – slower GDP, Fed on hold – supports growth. But if we get a surprise inflation number or a hawkish Fed comment, these stocks could give back gains quickly. We've seen that pattern before. Luna: So you're saying the market is pricing in a rosy scenario, and any hiccup could cause a violent rotation back to value. Lucas: Right. And that's why it's important to have a plan. If you're going to chase momentum, you need to know your exit strategy. Are you going to sell if it drops ten percent? Twenty? Having that discipline is what keeps you from riding a stock all the way down. Luna: That's a good point. In the end, momentum is a tool, not a strategy. It works when you use it correctly, but it can be dangerous if you're not careful. Lucas: Couldn't have said it better. So this week's takeaway: the bull market is still alive, but it's getting pickier. The winners are the companies that can deliver growth despite a slowing economy. And for investors, the key is to ride that momentum without losing your head. Luna: Well said. Thanks for joining us, and we'll see you next time with more insights from the market.