On Thursday, House Speaker Kevin McCarthy (R-CA) signaled Congress and the Biden Administration could reach an agreement on the debt ceiling as soon as next week. This paves the way for the U.S. to avert a costly debt default.
Proving that news is music to the ears of market participants, the S&P 500 closed at its highest levels of 2023. Growth stocks contributed to the rally, indicating that exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) are beneficiaries of positive debt ceiling headlines.
Those Invesco ETFs could potentially deliver more near-term upside if a debt ceiling resolution is reached or policymakers opt to revisit the issue in September.
“The passage of the debt ceiling may mean a return to macro fundamentals, where earnings are holding up better than expected with margins (ex-Energy/Fins) higher on a QoQ basis and the expectation for earnings to accelerate higher from here,” according to a recent note from JPMorgan’s trading and sales team.
Wall Street Likes Select QQQ, QQQM Components
Beyond macroeconomic benefits offered by the U.S. averting a debt crisis, there are other positive tailwinds for QQQ and QQQM. Those include Wall Street’s ongoing affinity for some of the ETFs’ marquee holdngs.
For example, JPMorgan noted on Thursday that it’s growing positive on Netflix (NFLX) while reiterating an “outperform” rating on the stock. Likewise, Citi named Facebook parent Meta Platforms (META) as a top pick, citing strength in the company’s online advertising business. Meta and Netflix combine for over 5% of the QQQ and QQQM portfolios.
“Key among them include stabilizing trends across online advertising, but those platforms focused on ads innovation should continue to outperform, and we highlight META, our new Top Pick overall,” according to Citi.
Amazon (AMZN), which is the largest consumer discretionary holding, was reiterated as a “buy” by Jefferies on Thursday with the research firm noting the company’s “advertising platform is still laps ahead of its eCommerce competition, and all the data exhaust is creating a strong AI opportunity.”
Amazon and perhaps the bulk of the consumer discretionary stocks in QQQ and QQQM could benefit from debt ceiling progress. The issue has weighed on cyclical stocks. That sector is the ETFs third-largest sector exposure. Overall, cyclical allocations in the two Invesco ETFs are low. This indicates the funds could be less bad should debt ceiling negotiations breakdown.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.