Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why Value Stocks Are Quietly Outperforming Growth in May 2026
Transcript
- Lucas: So the NASDAQ just blew past 26,600 for the first time. The S&P 500 is at 7,520. Headlines are all about AI and mega-cap momentum. Meanwhile, the Russell 2000 is up nearly 4% in the last five days alone. Luna: That is a huge gap. The small-cap index is basically lapping the large-cap indices this week. Lucas: Right. And if you dig into the Russell, it's not the growth stocks driving it. It's the value side. The Russell 2000 Value Index has outpaced its growth counterpart by over 2% this month. That is a quiet rotation happening under the NASDAQ headlines. Luna: I want to sit with that because a lot of listeners might be looking at their portfolios heavy on growth and wondering if they missed something. If today's conversation helps you think about where your money is positioned, that's the whole point of this show. The way we keep these chats ad-free is listener support at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small gesture that lets us stay independent. Now back to that rotation. Why is value suddenly working? Part of it is rates. The Fed funds rate has been flat at 3.64% for a while now. No cuts on the horizon. That environment tends to favor companies with current earnings and dividends over promises of future growth. Luna: So the cheap money era is officially over. Growth stocks that relied on low rates to justify high valuations are getting repriced. Lucas: Exactly. And you're seeing it in the data. The large-cap growth ETFs like IWF and VUG are up less than 1% over the past five days. Meanwhile, ARKK, which is more speculative growth, is up nearly 3% — but that's a bounce from a deeper drawdown. It's not broad-based momentum. Luna: Let's talk about a specific signal. Jamie Dimon said JPMorgan could spend up to $20 billion on an acquisition. That is a massive vote of confidence in the economy from the most powerful banker in the world. Lucas: It is. And it's not just talk. JPMorgan has the balance sheet to do it. If Dimon is ready to deploy capital, he's betting that the value of the assets he buys will grow. That's a bullish signal for the whole financial sector. Luna: Financials have been quietly grinding higher. The S&P 500 financial sector is up about 8% year-to-date. That's actually better than the broader index. Lucas: Yeah, and regional banks — which are a big part of the Russell 2000 value index — are participating. They benefit from a stable rate environment because they can lend at a spread over what they pay for deposits. If the Fed holds steady, that's a nice tailwind. Luna: Energy is another value pocket doing well. China industrial profits jumped 24.7% in April, the fastest gain in over two years. If the global economy is picking up, energy demand follows. Lucas: And that feeds into the rotation narrative. You have financials and energy both showing strength. Those are classic value sectors. Meanwhile, the high-flying growth names like Palantir are down 2.4% in the same five-day window. CrowdStrike is flat to slightly down. Luna: So the question is: is this just a short-term shift, or the start of a new leadership regime? Lucas: That is the million-dollar question. Historically, value tends to outperform in the later stages of a bull market when the economy is growing but rates are stable or rising. We have GDP growth at 2%, which is solid. Real GDP is up to $24.17 trillion. That's not booming, but it's steady. Luna: And valuations. The S&P 500 is trading at about 21 times forward earnings. The Russell 2000 value index is closer to 14 times. There's a discount that could close if earnings hold up. Lucas: Right. And that discount is exactly what Dimon and other value-oriented investors are eyeing. If you look at the Russell 2000, it's still below its all-time high in nominal terms, even with this week's rally. There's room to run. Luna: Let me play devil's advocate. The NASDAQ is surging because of AI enthusiasm. Nvidia announced $150 billion in spending plans, and Taiwan chip stocks popped. Couldn't that pull money back into growth? Lucas: It could. And I'm not saying growth is dead. But the market is broadening out. The Equal-Weight S&P 500 has been outperforming the cap-weighted version recently. That tells you the rally is no longer just about the top seven stocks. Luna: So the takeaway for a listener might be: don't ignore value. Look at small-cap value ETFs, maybe financials and energy, as a complement to whatever growth they already hold. Lucas: Exactly. And keep an eye on the Russell 2000. If it continues to lead, that's a healthy sign for the bull market. If it fades, then growth reasserts itself. But right now, the data says value is having its moment. Luna: One more data point: the Fed's interest on reserve balances is 3.65%. That's the effective floor for short-term rates. As long as that's above 3%, cash is competitive. But if you're in stocks, you want to be where the earnings growth is. Lucas: And value stocks are delivering that earnings growth right now. Financials are reporting solid net interest margins. Energy companies are generating free cash flow. It's a different story from 2021 when everything was about user growth and no profits. Luna: Alright, so let's wrap with a concrete suggestion. If someone wanted to act on this, what would they do? Lucas: I'd start by looking at a Russell 2000 value ETF or a financials ETF. But more importantly, I'd check your own portfolio's exposure. If you're 90% growth and 10% value, maybe tilt a little. Not a full rotation, just a hedge. Luna: That's a smart way to play it. And remember, markets can shift fast. But the data today points to value as the quiet leader. Lucas: Right. We'll keep watching this space. Next episode, we might talk about what happens if the Fed actually cuts later this year. But for now, the bull market is broadening, and that's a good thing.