In financial markets, it’s often said that “the trend is your friend.” That’s an accurate sentiment as it pertains to the 2024 performance of the tech sector.
Investors have been rewarded for being long technology stocks and ETFs. Those who have dared short such assets have learned about the dangers of bucking trends. That much is confirmed by the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). As of June 24, both were sporting 16.1% year-to-date gains.
That’s confirmation of the spoils of sporting allocations of 52.04% to the technology sector. Those allocations are well above the hefty weights to the sector in traditional broad market indexes. Given the intensity of the 2024 tech rally and the devotion of some investors to the AI megatrend, some market observers are concerned about sharp pullbacks. Those concerns are warranted. But other experts believe the tech rally has sound fundamentals and could deliver more upside in the months ahead.
Catalysts Abound for QQQ, QQQM
Undoubtedly, the AI story is captivating and it’s been beneficial to investors holding QQQ and QQQM. Those ETFs are two of the most AI-centric ones on the market. The good news is more than just AI is supporting tech bullishness.
“We’re less concerned than some in the market about the small group of tech stocks driving gains,” noted BlackRock. “Why? First, excitement over AI is being met by tech firms delivering on and beating high earnings expectations. Second, profit margins for tech are leading the market, but they’re also recovering in other sectors as cooling inflation eases costs pressures on margins. We stay overweight U.S. stocks on the AI theme.”
Of note to investors considering QQQ and QQQM is that while there’s no shortage of critics warning about lofty valuations on tech stocks, including several residing in the Invesco ETFs, those multiples are being fortified by earnings per share growth.
“Analysts expect they’ll rise 20% in the next 12 months – well above forecasts for the rest of the market. Tech firms have so far delivered on lofty expectations: Their earnings grew 23% year over year in Q1. In a world where mega forces – big structural shifts – drive returns now and in the future, we eye the short- and long-term impacts of AI on earnings,” added BlackRock.
Adding to the allure of QQQ and QQQM are strong balance sheets throughout the tech sector and the group’s status as the largest repurchaser of its own shares. Those sturdy balance sheets are also allowing for self-funding of critical AI projects. That means some QQQ/QQQM member firms aren’t issuing debt to fund growth.
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