Growth stocks are rebounding in the early stages of 2023 and that resurgence is being led by an assortment of familiar large- and mega-cap names.
That’s good news for a slew of exchange traded funds, including the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). Those ETFs, which track the same index, are up 15.7% year-to-date.
Gains for growth stocks “have been led by tech giants such as Apple (AAPL), up 18.1% in 2023 through Feb. 14, as well as smaller names including sports betting and entertainment company DraftKings (DKNG), which gained 45.7% for the period, and Lattice Semiconductor (LSCC), which has risen 37.6%. But with tech stocks composing heavy percentages of the growth stock universe, their recent jump has been critical to the rebound,” according to Morningstar research.
Online sportsbook operator DraftKings (NASDAQ: DKNG) isn’t yet a member of the Nasdaq-100 Index – the benchmark followed by QQQ and QQQMG – but the gaming equity could eventually make its way to that prestigious territory. For its part, Lattice Semiconductor (NASDAQ: LSCC) is a member of the Invesco NASDAQ Future Gen 200 ETF (QQQS). However, Apple (NASDAQ: AAPL) is the second-largest holding QQQ and QQQM, commanding 12.05% of the ETFs’ weights.
Other well-known contributors to QQQ and QQQM year-to-date upside include Amazon (NASDAQ: AMZN) and Tesla (NASDAQ: TSLA) – the ETFs’ two biggest consumer cyclical holdings. Chips stocks, including Nvidia (NASDAQ: NVDA), are contributing, too. Nvidia is getting a lift from the artificial intelligence boom as well as rebounding crypto prices, among other factors. Advanced Micro Devices (NASDAQ: AMD) – a direct rival to Nvidia, is getting in on the act, too.
“At the industry level, software infrastructure stocks have contributed the most to the growth rally, with returns totaling 16% so far this year. Software application stocks, which compose 10.8% of the weight in this index, have shown returns of 20.1%. Semiconductor stocks have also been a significant driver of the large growth rally,” added Morningstar.
In terms of the growth stock outlook for the remainder of 2023 and how things might play out for ETFs such as QQQ and QQQM, investors should expect the Federal Reserve will loom large.
“To start 2023, growth stocks are being lifted by changing expectations around the outlook for the economy and the Fed. Increasingly, investors believe the Fed is nearing the end of its interest-rate hikes, and, at the same time, the U.S. economy can avoid a recession. Both developments would be good news for stocks where valuations depend heavily on expectations for robust future earnings growth,” concluded Morningstar.
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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.
