Late October 29, risk assets were pinched by commentary from Federal Reserve Chairman Powell. He implied a December interest rate cut isn’t a lock. Assuming the central bank doesn’t contribute to a Santa Claus rally, that’s not the type of holiday cheer investors are hoping for. Still, it can’t be ignored that the Nasdaq Composite Index finished in the green that day. So did the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). Both funds track the Nasdaq-100 Index (NDX). In fact, those ETFs are up a stunning 5% over the past week. That confirms the tech stock rally is alive and well.
As has been the case for several years now, it’s the largest holdings in QQQ and QQQM that are delivering the goods. That’s propelling the ETFs to the upside as their market values balloon to previously unthinkable levels.
Familiar Names Driving QQQ Higher
In what amounts to good news for QQQ and QQQM investors because these are cap-weighted ETFs, the drivers of recent upside for the funds are some of the most familiar names to investors in this country. That includes Nvidia (NVDA), which is now a $5 trillion company. Yet it feels like only weeks ago its market cap reached $4 trillion.
“The same week Nvidia became a $5 trillion company, two other tech firms saw major milestones of their own. Both Microsoft and Apple surpassed a $4 trillion market capitalization on Tuesday, with Microsoft climbing on the announcement of a new partnership with ChatGPT maker OpenAI,” according to Morningstar.
That trio of tech titans combine for more than 26% of the rosters of QQQ and QQQM. And let’s not forget Google parent Alphabet (GOOG), which rallied in after-hours trading October 29 after reporting another strong set of quarterly results.
For all the criticism about AI spending and whether those expenditures are paying dividends for the companies doling out that cash, it’s clear that tech and communication services stocks — the two biggest sector weights in QQQ and QQQM — remain market leaders. Moreover, betting against those groups is clearly a fool’s errand.
“That action is just the latest development in a years-long rally for the sector. Technology stocks overall have rocketed higher since the bull market began three years ago, with the Morningstar US Technology Index rising 167%, double the gains of the broader Morningstar US Market Index,” added Morningstar.
Bottom line: Don’t fight the tech tape.
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