Growth Stocks Are Down Bigly
2025 has been a tough year for growth stocks. The Nasdaq 100 is home to many of the stock market’s biggest growth stock. The so-called magnificent 7 stocks reside in the Nasdaq 100 and we see so many other powerful leading stocks reside in that index. I was surprised to see that as of Friday’s close, approximately 17% of the Nasdaq 100 stocks are down double digits in 2025!
Here are some of the laggards in the Nasdaq 100:
As you can see there are a lot of stocks that are down bigly in 2025!
That means a defensive stance is warranted until the action improves.
What’s going on?
Naturally, investors are asking What’s Going On? Is the growth stock party over?
Only time will tell but for now, we know that growth stocks are under pressure and the party’s cooling off fast. AI was a big driver of the recent rally and AI stocks have been under pressure recently. Other growth areas, that were up big earlier in the month, are also selling off such as: robotic, drone, quantum computing, nuclear, semiconductor, and other growth stocks.
Hype’s a Killer: When the Story Fades
Growth stocks can rally sharply and enjoy tremdnous moves when the story – and institutional demand- is strong. Returns in growth stock can be mind boggling. That said, when the story fades, look out below. Trade Desk is a good example of a growth stock that can turn ugly, fast. Tesla is another good example of growth stock that nearly doubled since the election only to erase all the post election gains in a few short weeks.
Big Lesson = Be Patient In The Market, Don’t Chase Stocks.
I’ve seen it a million times—investors chase stocks, throw caution at the wind, think “this time is different” only to see the stock fall hard after they part is over. Many investors experience FOMO (Fear Of Missing Out) and buy stocks just to say they own XYZ. Right now, approximately 17% of the Nasdaq 100 is down double digits, the market is speaking loud and clear: when the hype ends, the story stumbles, and there’s no meat on the bone, investors can lose a lot of money. Defense is first in my world because it protects both our mental and physical capital in all market environments.
Macro Smackdown: Rates and Tariffs Hit Hard
Growth stocks like certainty and the macro environment is uncertain right now.
When you step back and look at the big picture—the macro environment is questionable at best.
February’s been a wake-up call for growth investors. Inflation’s above the Fed’s 2% sweet spot, and the FOMC’s mid-month minutes screamed “no rate cuts for you!” The 10-year Treasury yield also impacts growth stocks and it is not helping right not.
Higher rates?
Higher rates are kryptonite for growth stocks because it discounts their future cash flows and makes future growth bets look pricey.
Then there’s Trump, swinging tariffs like a sledgehammer—cars, semiconductors, steel, aluminum, you name it. All that uncertainty creates a risk-off environment. Growth stocks thrive in a risk-on environment and suffer in a risk-off environment. territory. Investors who slept on this macro shift? They’re the ones holding the bag. You can’t ignore the Fed or the White House—those are two massive elephants in the proverbial room.
How Growth Investors Win
The first thing successful investors do is they have a plan and the second thing they do is remain disciplined and trade their plan. First, kill the hype addiction. Second, don’t chase stocks. Third, always respect risk. Here are three important questions I ask before I buy or sell a stock: Where am I going to enter? Where am I going to exit? And How much am I going to risk if I’m wrong. This way everything is clear before I enter a position. My entry point is defined. My exit point is defined. My max risk is defined. Only then, if I’m comfortable, I’ll enter the position. That is true for just about any investment I make, even if it is not buying a growth stock. Paying attention to risk and remaining discipline are two super powers in this business.
The Bottom Line = This Too Shall Pass
February 2025’s been a gut punch for growth stocks. That said, this too shall pass.
Take some time to study your trades, where can you improve? What lessons can you learn? Then, create a plan going forward.
Monday will be the first trading day of March. Then we have the jobs data, Fed moves, inflation, more tariff drama. If we rally from here what stocks held up the best?
Where are the leading stocks right now? Do you have an updated watchlist of leading stocks? The easiest way to do that is to find the stocks that are up or didn’t fall as much as the market during this pullback. They are likely the ones to lead when the market rebounds.
I like to say, always keep your losses small and don’t fight the tape.
Remember, this too shall pass and when it does I want to be there to clean up.