The Nasdaq is heading for its worst week since April as investors take profits and volatility returns to the market. Despite strong fundamentals, the rally in tech stocks has paused as valuations stretch and earnings momentum slows.
BNN Bloomberg spoke with Drew Pettit, director of U.S. equity strategy at Citi, who said the current phase reflects a healthy pullback within a longer bull market. Pettit said investors are tactically rotating toward small caps and cyclical stocks while maintaining exposure to growth and technology.
Key Takeaways
- The market has entered a more volatile phase of the bull run as investors lock in profits after major tech gains.
- Earnings surprises and upward revisions have slowed, creating room for short-term consolidation.
- Structural themes like AI and productivity gains continue to underpin a bullish long-term outlook.
- Investors are favouring growth and cyclical exposure, particularly small caps, semiconductors and financials.
- Retail investors’ use of leveraged ETFs remains disciplined, suggesting sentiment is bullish but not euphoric.
Read the full transcript below:
ANDREW: The Nasdaq, as of today, is on course for its worst week since April, with pressure on tech stocks continuing. Of course, we would normally have the jobs report today, but there’s this data drought because of the U.S. government shutdown. Let’s get perspective from Drew Pettit, director of U.S. equity strategy at Citi. Drew, great to see you once again. Thanks for joining us. Talk to us about this weakness in tech stocks. Nothing goes up forever — is this just a normal blip in the market?
DREW: I would say so. The longer-run fundamentals are still intact. We were priced for great results, and earnings have been good. So when you get that setup, it gives people a reason to take some profits and some money off the table — and that’s what we’re seeing here. Honestly, this is what we expected coming into earnings season. We still like tech and we still like growth, and you’re getting a chance to buy on a pullback right now.
ANDREW: Let’s put up a one-month chart for the Nasdaq 100. What do you think? Are people just saying, “I’ve made a lot on these tech stocks,” and taking a second look?
DREW: Yeah. When you really think about it, markets are pricing in roughly 20 per cent growth for the next three years for a lot of these tech stocks — that’s 20 per cent compounding on 20 per cent on 20 per cent. When you get results that confirm that but don’t move that number higher, you’re fairly valued. So when you’ve seen these big pops, the normal behaviour is to book some profits. What we’re seeing is people are still very excited about these stocks — about AI, technology developments and productivity — but prices have really run ahead of what the fundamentals can support. When you get that setup, healthy behaviour is taking profits, like what we’re seeing now. Unhealthy behaviour is levering up and chasing these things higher and higher. We actually want these kinds of volatility events in a bull market, so it can be sustained longer than just a month or two.
ANDREW: You use an interesting analysis tool. You’ve been looking at retail investors’ use of leveraged and inverse ETFs, which are typically short-term trading vehicles. What trends are emerging?
DREW: A lot of people focus just on the level of assets in leveraged products versus inverse products. With the market up, yes — leveraged products with upside are going to have more money in them. But when you look at how they’re being used, people are long and happy, they’ve made money — and when you get big moves to the upside, they’re actually selling these leveraged ETFs. They’re not holding on to them. The average holding period, we estimate, is about four days. That’s smart, tactical use: hold it for a short period, sell it when you get a pop. As long as that behaviour stays in place, it’s healthy. It’s not irrational or performance chasing or exuberant. We’re not there yet. Healthy behaviour is what we want to see. Pullbacks aren’t bad.
ANDREW: Broadly, what asset classes or types of stocks are you emphasizing right now?
DREW: We like the Nasdaq on pullbacks. If you’re sitting on cash and thinking about putting it to work in the U.S., small caps are really interesting. They’ll likely have positive earnings growth next year for the first time in two years. For new money, we’d put it into small caps. For existing equity allocations, you can buy growth on a pullback. Within growth, we like GARP — growth at a reasonable price — and within small caps and cyclicals, we want to buy companies whose quality is set to improve next year.
ANDREW: It’s often said small caps are more exposed to the state of the U.S. economy. Do you feel comfortable with the outlook for American growth?
DREW: Yeah, we actually do. You’ll probably see some softening in employment numbers. Some non-government data this week told two different stories. But if you avoid recession, you’ll probably have enough of a tailwind from easing trade uncertainty to turn earnings growth from negative to positive for a lot of cyclicals. That’s something we haven’t had in a while. And just to be cheeky, the reason you buy small caps is for growth. You want them to have growing earnings, and they haven’t for two years — but they will now. So it’s not going to be an all-in market, but if you think this bull market continues — and that’s our base case — there’s more that can work into 2026.
ANDREW: You’ve got a couple of stock ideas for us. One we don’t talk about much — MKS Instruments, ticker MKSI. They supply instruments and chemical products used in semiconductor manufacturing. You see promise there?
DREW: Yeah, it’s funny. Everyone wants to talk about Nvidia and other large-cap semiconductor names, and yes, those fundamentals are strong. But you’re starting to see broadening in tech. Semiconductors are an area we like. Where you get better value and growth at a reasonable price is when you move down the market-cap scale. The trade is broadening out, the fundamentals are strong, and there’s more upside as revisions move higher for names like this.
ANDREW: Another name — Mastec, ticker MTZ. It’s an American infrastructure company involved in the major electricity buildout.
DREW: Yeah, I’ll stay away from the thematic story — you covered that well. Fundamentally, the company is expected to see margins improve next year and beyond, and its asset turnover is picking up too. Efficiency is improving. When we talk about cyclicals, we want improving quality — and this company is doing that. It’s the type of inflection we want to buy into for 2026.
ANDREW: We’d better jump. Thank you very much, Drew.
DREW: You’re welcome. Take care.
ANDREW: That’s Drew Pettit, director of U.S. equity strategy at Citi.
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This BNN Bloomberg summary and transcript of the Nov. 7, 2025 interview with Drew Pettit are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
