The Nasdaq-100 Index (NDX) is off more than 10% from its 52-week high. This confirms the benchmark is in a correction but not a bear market. Pullbacks are normal and can be healthy. It could prove to be the buying opportunity some investors have waited for.
If that proves accurate, the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) stand to benefit. Both exchange traded funds follow NDX. As such, both ETFs have struggled in recent months. It’s important that investors understand why QQQ and QQQM are pulling back.
NDX rallied hard and fast in the early stages of 2023. More recently, growth stocks have fallen out of favor. This is because 10-year Treasury yields spiked as some 3Q earnings from large-cap growth companies failed to illicit enthusiasm among market participants. However, the longer-ranging bull outlook for NDX remains intact.
QQQ, QQQM Have Rebound Potential
Securities don’t move up in a straight line, nor do corrections last forever. In fact, some experts believe the current Nasdaq retrenchment could be a crucial buying opportunity for savvy investors.
“First, the AI Race is intensifying, as firms are racing to lead in the development, deployment, and utilisation of artificial intelligence technologies,” wrote deVere Group CEO Nigel Green in a Monday note. “It is going to reshape whole industries, create new ones, and fuel innovation beyond what we can currently imagine.”
As Green points out, Google parent Alphabet (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), and Microsoft (NASDAQ: MSFT), of which are marquee QQQ/QQQM holdings, are among the companies driving AI innovation. Several other components in the ETFs are also major AI players. That’s a positive, but there are other potential catalysts for the ETFs.
“Second, tech companies are known for their ability to pivot and adapt to changing market conditions. They’re well-equipped to weather the storm of rising interest rates and adjust their strategies to maintain profitability and relevance,” added Green. “Third, the market fears are presenting opportunities to purchase high-quality tech companies at a lower cost, allowing investors to potentially benefit from capital appreciation when the market rebounds.”
For investors who want to use the current pullback as a buying opportunity, it pays to remember that stock-picking is difficult and fundamentals matter. On those notes, the relevance of QQQ and QQQM is arguably enhanced.
“Like those which have gone before it, this tech sell-off will provide an opportunity for investors to selectively acquire tech stocks with solid fundamentals and growth potential,” concluded Green.
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