Amid a wave of new market participants and the “you only live once (YOLO)” outlook that was so pervasive in 2020, some market observers believe that financial markets took on a casino-like feel. They also believe the wager-don’t-invest attitude remains in place today, at least in some circles. However, while devil-may-care outlooks may appear fashionable, good old-fashioned investing will eventually come back into style, and that could benefit exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
In particular, QQQM is an ideal ETF for long-term investors because it’s cost-effective, as highlighted by an annual fee of 0.15%, or $15 on a $10,000 investment. Plus, some of the factors that propelled speculative market participation in 2020 could fall by the wayside, aided by disinflation.
“Yet, there is reason to believe some disinflation could start seeping into the data post-Halloween: used car prices are 15% below their January peak, which is not yet reflected in official inflation data,” according to BlackRock research. “Also, energy commodities have come off the boil and with no further change will show a 21% decline by next June. Retail inventories are at record highs as companies overstocked in response to unsustainable pandemic demand, and supply chain pressures, freight and logistics are no longer inflationary, and could soon be a source of deflation.”
The arrival of deflation or disinflation, which might be materializing, as highlighted by the October reading of the Consumer Price Index (CPI), is pertinent when evaluating QQQ and QQQM because the two ETFs are heavily allocated to growth equities. Growth stocks are being pinched this year due to rising interest rates, which the Federal Reserve is deploying to damp soaring consumer prices.
“In a regime of hot inflation in the real economy, amidst a highly levered financial economy, there is likely massive dissonance associated with finding a harmonious equilibrium through a single policy rate setting,” added BlackRock.
Investors considering QQQ and QQQM should maintain perspective, not short-term views. Over the long haul, fundamentals and valuation matter. Fortunately, many QQQ and QQQM components are fundamentally strong companies now trading at attractive multiples.
“Markets are driven by valuation over the medium to long-term, but by technicals over the short-term. One must be a student of both today. Leverage in financial markets is much more often applied to fixed income rather than equities, hence loss-induced de-risking tends to impact fixed income securities more than equities,” concluded BlackRock.
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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.