Since the notorious bursting of the internet/technology bubble in 2000, it feels as though every time the related assets rally in significant fashion, bubble talk rises.
With the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) up nearly 45% year-to-date, there’s no shortage of bubble chatter and much of its directed at some of the marquee holdings of those exchange traded funds. On the other hand, perspectives on bubbles aren’t always born out and they can often be a matter of opinion.
Plus, not all bubbles burst or end in tragic fashion. Just how “bubblicious” QQQ and QQQM are today is a matter of debate and while one analyst admits tech is in bubble territory, she adds there’s more upside to come for some of the stocks that have propelled the Invesco ETFs higher this year.
“The tech sector has entered a bubble, but we believe there is still time to join the hype, not fade it,” wrote Citi strategist Hannah Sheetz in a recent note to clients.
Bubble History Meaningful
In assessing the bubble state of affairs today and potential impact to QQQ and QQQM member firms, history is worth observing.
Sheetz “said tech bubbles usually return 6.4% in addition to the market for the first six months after the signal flashes. In fact, tech shares enjoy their best gains 16 months after the signal flares. What’s more, these bubbles last nearly two years on a median basis,” reported Sarah Min for CNBC.
Translation: Just because a bubble signal flashes, that doesn’t mean near-term upside is off the table. Nor does it mean a harsh correction is imminent. Speaking of history, it’s worth remembering that the tech/internet bubble of 2000 was fueled in large part by a simple point: Many of the big members of the Nasdaq-100 Index (NDX) — the underlying benchmark for QQQ and QQQM — at that time weren’t profitable and burning cash.
The opposite is true today as many the primary drivers of performance for these ETFs aren’t only highly, profitable, but they have massive cash stockpiles as well. Both traits can act as buffers should the current bubble pop. Importantly, plenty of QQQ and QQQM holdings are growing earnings, which history suggests can be a positive byproduct of bubbles.
“Earnings growth for tech tends to rise after a bubble signal. Additionally, a bubble in any sector usually means the broader market also does well,” CNBC reported, citing Citi.
For more news, information, and analysis, visit the ETF Education Channel.
