Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Growth Stocks Are Crashing While the Dow Holds Steady
Transcript
- Lucas: Luna, I've been staring at the screens all morning, and I keep coming back to one number: the Dow is down just 0.4% over the past five days. The S&P 500? Down 2.8%. The NASDAQ? Down over 5%. Luna: And then you look at the high-growth names — CrowdStrike down 14%, Datadog down 15%, Palantir down 15%. It's a bloodbath in that corner. Lucas: Right. So the question is: is this a healthy rotation within a bull market, or are we seeing the early cracks of something bigger? I think the answer hinges on one catalyst from last Friday. Luna: The jobs report. 272,000 new jobs versus the 185,000 expected. Lucas: Exactly. That was a hot number, and it basically slammed the door on any near-term rate cut. The Fed funds rate is still at 3.63%, and markets had been pricing in a cut by September. Now that's off the table. Luna: So growth stocks — which are essentially long-duration assets — get repriced immediately. Higher rates for longer means their future earnings are worth less today. Lucas: Precisely. And that's exactly what we're seeing. The ARKK Innovation ETF, which is packed with high-growth names, is down 8.3% in just five days. Shopify down 11.7%. These are stocks that had rallied hard on AI optimism. Luna: Meanwhile, the Dow — which is heavy on industrials, financials, and old-economy stocks — barely flinched. It's like the market is split in two. Lucas: It is a two-tier market right now. And I think the key is that the rotation is happening inside the bull market, not because the bull market is ending. Real GDP growth is still positive at 1.6% annualised, nominal GDP is over 31.8 trillion. Luna: But the pain in growth is real. If you owned CrowdStrike at the start of last week, you lost 14% of your money in five days. That's not a small move. Lucas: No, it's not. And I think it's worth asking whether this is just a valuation reset or something more structural. CrowdStrike still trades at a price to earnings ratio north of 80. Datadog is even higher. So maybe the market is just saying, 'These multiples were too rich given the rate environment.' Luna: But what about Palantir? That stock has been a market darling. Down 15% in a week — that's a serious haircut. Lucas: It is. And Palantir's story is tied to government AI contracts, which are long-duration revenue streams. So same dynamic applies. Higher discount rates, lower present value. Luna: So if you're an investor watching this, what do you do? Do you move into Dow stocks, or do you hold and hope the rotation reverses? Lucas: I think the honest answer is: it depends on your time horizon. If you're a long-term investor, these pullbacks in quality growth names can be buying opportunities — but only if you believe rates will eventually come down. If you think rates stay at 3.6% or higher for another year, then maybe the Dow's resilience is telling you something. Luna: And the Fed chair, Warsh, has been pretty clear: no cuts until inflation is sustainably at 2%. The jobs report just reinforced that. Lucas: Right. So the market is repricing risk. And I think the interesting thing is that it's not a panic sell-off. The VIX is elevated, but not spiking. It feels like a calculated rotation. Luna: Let's talk about what's actually holding up. Industrials, financials, energy — those sectors are flat or up. What's the common thread? Lucas: They benefit from a strong economy with higher rates. Banks earn more net interest margin. Industrials benefit from solid GDP growth. And energy — well, oil prices have been stable. So these are 'higher for longer' winners. Luna: So the bull market isn't dead. It's just changing costume. Lucas: That's a good way to put it. And I'd add that the NASDAQ's 5% drop might look scary, but it's still up something like 12% year-to-date. So we're talking about a correction within an uptrend. Luna: Still, for anyone who piled into AI stocks in May, this week has been a wake-up call. Lucas: Absolutely. And I think the lesson is: diversification matters. If you were all in on growth, you're feeling pain. If you had some value or industrials, you're probably fine. Luna: So what's the one data point you're watching to see if this rotation continues or reverses? Lucas: I'm watching the 10-year Treasury yield. If it breaks above 4.5%, that's another leg down for growth. If it stabilises or falls, the selling might slow. Also, next week's CPI print will be huge. Luna: And the Fed meeting later this month — even though they're expected to hold steady, the tone of the statement matters. Lucas: Exactly. So the bottom line: this is a market that's recalibrating to a stronger economy and stickier inflation. Growth stocks are paying the price, but the bull market isn't over — it's just rotating. Luna: And that's actually a healthy sign, as long as the rotation doesn't turn into a rout. Lucas: Right. And if you're finding these kinds of market breakdowns useful for your own thinking, I'll just mention — we keep this show ad-free and independent, and listener support is what makes that possible. If our conversations have helped you navigate a decision, you can support us at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that goes a long way for us. And we really appreciate everyone who does. Lucas: So back to the market — one thing I want to flag: the Russell 2000, which tracks small caps, is down 2.5% this week. That's less than the NASDAQ but more than the Dow. Small caps are caught in the middle. Luna: Because they're more rate-sensitive than large-cap value, but they don't have the AI premium that growth stocks had. Lucas: Exactly. So the rotation is really about the extremes: the most expensive growth stocks getting hit hardest, and the safest value stocks holding up. Everything else is somewhere in between. Luna: So where do you think the opportunity is right now? Lucas: I'd look at high-quality growth that's been sold off indiscriminately. If a company has strong free cash flow and isn't trading at 100 times earnings, this sell-off might create a good entry point. But I'd wait for the CPI data before jumping in. Luna: Patience. That's the theme for June. Lucas: Patience and a close eye on the yield curve. Because if this rotation deepens, the Dow might not stay immune forever.