On the back of a decent though not spectacular May jobs report, stocks sank last Friday, and the Nasdaq-100 Index (NDX) wasn’t immune to that weakness.
Still, some market observers believe that NDX could be poised for better things in the back half of 2022, and that could support the case for evaluating exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
Both of those funds follow the NDX. The marquee difference between the two is that the smaller QQQM is more geared to long-term investors, as highlighted by an annual fee of 0.15%, or $15 on a $10,000 investment. That compares with a yearly expense ratio of 0.20% on the older QQQ.
QQQ is the preferred avenue for institutional players and professional traders owing to deep liquidity, tight spreads, and a robust options market. Speaking of the options market, it could be offering clues regarding the near-term fate of the Nasdaq-100 Index.
“Regardless of the long-term outlook, if you’re at least bullish on the short-term, there are several tech names within QQQ that may be worth a flier. In Schaeffer’s Senior Quantitative Analyst Rocky White’s latest Indicator of the Week, he identifies the 25 best-performing S&P 500 Index (SPX) stocks in the last 10 years. Eight stocks on that list fall under QQQ’s holdings,” according to Schaeffer’s Investment Research.
QQQ and QQQM have been under duress this year because rising inflation is among the factors plaguing growth stocks. However, if the Consumer Price Index (CPI) shows signs of easing from four-decade highs, some investors could be compelled to revisit growth stocks — the primary constituency in QQQ and QQQM.
“Peak inflation may be in the rear-view mirror, but it will still be ‘higher for longer.’ You can certainly forgive investors for flinching a bit when dipping their toe back into certain tech names like QQQ. To those skittish investors, we want to remind them that purchasing options in lieu of buying stock outright allows one to put less dollars at risk relative to equities, so as to maximize your ability to leverage in the face of continued upside,” added Schaeffer’s.
While growth and tech stocks are struggling this year owing to rising interest rates, there are signs that long-term investors are seeing value with these assets or are willing to be patient. For example, investors have added $1.36 billion in new capital to QQQM year-to-date, as of June 2.
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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.
