The Nasdaq-100 Index (NDX) is higher by 11.30% year-to-date and residing near all-time highs. This confirms that large- and mega-cap growth stocks are proving sturdy.
That’s good news for NDX-tracking exchange traded funds, including the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) – two ETFs with substantial allocations to well-known, quality growth equities. Some analysts have voiced concerns about lofty multiples on some growth equities, including names residing in QQQ and QQQM. Still, the Invesco ETFs are beating the Russell 1000 Value Index by 317 basis points since the start of the year.
So while value stocks are performing admirably, they’re still trailing growth counterparts. Investors want exposure to rising revenue and profits as well as to attractive themes such as artificial intelligence (AI).
Interest Rates Helping Growth Stocks, Too
As market participants remember, 2022 was a gloomy year for growth stocks. This is due in large part to the Federal Reserve’s interest rate tightening campaign. The asset class rebounded last year. While “higher for longer” may be the Fed’s script over the near- to medium-term, QQQ and QQQM are benefiting from steadiness in Treasury yields.
“Back in 2022 10-year yields surged, going from approximately 1.5% at the start of the year to an October peak of around 4.5%. Interestingly, the increase was not driven by higher inflation expectations, which had already surged in 2021. Instead the driver was mostly a shift in real or inflation-adjusted interest rates. Using the U.S. TIPS market, real 10-year yields started 2022 in negative territory, at approximately -1%. By the end of the year, they were over 1.5%,” according to BlackRock research.
So while 10-year yields are up since the start of 2024, the year-to-date move hasn’t been dramatic. Those yields now reside around levels seen last November. That could be indicative of rate cuts not being imminent. The reduced volatility is proving advantageous for growth equities and ETFs such as QQQ and QQQM.
The Invesco ETFs are also being supported by the steadiness of the U.S. economy, which continues to be the star of the major developed economies. GDP growth is by no means spectacular, but it’s solid. That scenario is conducive to market participants leaning into growth stocks.
“Furthermore, large-cap growth-oriented companies have some of the strongest balance sheets and are most levered to many of the secular trends, i.e., artificial intelligence (AI), that are supporting a resilient economy. We believe they can continue to lead. In this environment, we would advocate for a continued overweight to segments of the market tied to secular growth themes, particularly companies tied to the advancement of AI across the market,” concluded BlackRock.
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