Invesco QQQ monthly review

Overview

• For the month of June, QQQ’s NAV returned 6.24% outperforming the S&P 500® Index which returned 3.59%. The Russell 1000 Growth® Index outperformed QQQ which returned 6.74% while the Russell 1000 Value® Index underperformed which returned -0.94%.
• QQQ’s outperformance vs. the S&P 500 Index was driven by its overweight exposure in the Technology sector. The ETF’s underweight exposure and lack of exposure to the Financials sector was the third contributor to relative performance vs. the S&P 500.
• QQQ saw inflow of $4.26 billion.
• QQQ ended the month with $288.02 billion in AUM and remained the 5th largest ETF in the US (based on AUM).
• For the month of June, shares traded of QQQ fell by 12.74% month-over-month along with notional value traded falling by 7.33% month-over-month.¹

Market Recap

With Large-cap Growth leading the way, stocks continued their move upwards during the month of June. The Russell 1000 Growth Index returned 6.74% and outperformed the S&P 500, which returned 3.59%. QQQ’s NAV also outperformed the S&P 500 returning 6.24%. Many investors continued to focus on inflation readings and messaging from the Federal Open Market Committee (FOMC).²

The most recent Consumer Price Index (CPI) reading was released on June 12th, the same day that the FOMC was concluding their June meeting.³ Year-over-year inflation was reported at 3.3%, below the estimate and prior reading of 3.4%. Core CPI, which excludes the costs of Food and Energy, rose at a year-over-year rate of 3.4%, also below analysts’ estimates which were at 3.5%. The components of this month’s CPI continued to look similar to the previous two readings. There was a rise in the cost of Core Services, which stayed as the largest contributor to the year-over-year reading. There were also increases in the cost of Energy and the cost of Food. The cost of Core Goods continued to fall and be the only detractor to year-over-year CPI.

Month-over-month CPI was announced below the street’s expectation of 0.1% and came in at 0.0%, or no increase from the previous month. The cost of Core Services was the largest contributor to the month-over-month reading, followed by an increase in the cost of Food. The cost of Core Goods fell for the third reading in a row while the cost of energy fell for the first time since the January reading. Equities reacted positively to the reading with the S&P 500 rising over 1% after the announcement.

As mentioned earlier, the CPI release coincided with the June FOMC meeting. As expected, the committee left the target Fed Fund’s rate between 5.25% - 5.50%.⁴ This meeting saw the release of an updated Summary of Economic Projections (SEP) and the report took a more hawkish tone compared to the previous report.⁵ In particular, the SEP showed the median estimate for the year-end Fed Target Rate increase from 4.625% to 5.125%. This would imply that the FOMC may only cut rates once vs. the broader expectation that they would cut twice before the end of the year. The dot plot also revealed that there are now four voting members of the committee that feel a rate hike may be necessary this year, up from two in the previous SEP.⁶ There was also an adjustment to the long-run neutral rate, the interest rate level that neither is beneficial or detrimental to growth, which moved from 2.6% to 2.8%. These shifts provided a more hawkish tone than previous meetings and caused the market to trade down off the intra-day highs on the day.

The big question was whether or not the CPI report released on the same day was factored into the decision-making process of the meeting. Federal Reserve (Fed) Chairman Jerome Powell was able to confirm that the lighter-than-expected inflation reading was factored in, as the committee members had an opportunity to adjust forecasts after the release. This statement was interpreted as hawkish and set the tone for the remaining of the press conference. Powell went on to state that the FOMC did not have the confidence to lower rates at that time and that it was too soon to tell if the current policy was “sufficiently restrictive” to bring inflation back to their 2% target. The Chairman said that they will only know over time if this was the case. However, he did follow-up stating that the evidenced showed policy is restrictive and that the effects they were hoping for were starting to play out. Powell also said that no committee members have rate hikes as their “base case.”

Personal Consumption Expenditures (PCE), which is the FOMC’s preferred measure of inflation, was released on the last day of trading of June.⁷ Year-over-year PCE was announced at 2.6%, in line with the 2.6% expectation and lower than the previous month’s reading of 2.7%. A rise in the cost of Services continued to be the majority of the reading followed by the cost of Nondurable Goods. The cost to Nonprofits also contributed. The cost of Durable Goods continued to be the only deflationary component to year-over-year PCE.

The 0.0% month-over-month PCE was also in line with expectations and lower than previous month’s reading which was 0.3%. This was the first zero reading since November 2023. A rise in the cost of Services was the only component with a positive value. This was offset by declines in the cost of Durable Goods, Non-durable Goods and Non-profits. The fall in month-over-month Non-durable Goods was the first negative reading since January. Month-over-month Core PCE, which excludes the Food and Energy costs, rose 0.1% which was in line with expectations but lower than the previous 0.2%. Overall, this month’s inflation readings may provide more confidence to the FOMC that inflation is moving sustainably toward 2%.

QQQ Performance

From a sector perspective, Technology, Consumer Discretionary and Health Care were the best performing sectors in QQQ and returned 8.69%, 5.99% and 2.90%, respectively. During the month, these three sectors had average weights of 61.18%, 17.29% and 6.14%, respectively. The bottom performing sectors in QQQ were Utilities, Real Estate and Consumer Staples with average weights of 1.22%, 0.21% and 3.47%, respectively. Utilities returned -5.67%, Real Estate returned -5.16% while Consumer Staples returned -4.40%.

Standardized performance - Performance quoted is past performance and cannot guarantee of comparable future results; current performance may be higher or lower. Visit invesco.com/performance for the most recent month-end performance. Investment returns and principal value will vary; you may have a gain or loss when you sell shares. Fund performance reflects fee waivers, absent which, performance data quoted would have been lower. Invesco QQQ’s total expense ratio is 0.20%. Index performance does not represent fund performance. Please keep in mind that high, double-digit and/or triple-digit returns are highly unusual and cannot be sustained.

QQQ’s outperformance vs. the S&P 500 was driven by its overweight exposure in the Technology sector. The ETF’s underweight exposure and lack of exposure to the Financials sector was the third contributor to relative performance vs. the S&P 500. The Telecommunications sector detracted the most from relative performance and was driven by its overweight exposure and differentiated holdings. Differentiated holdings in the Consumer Staples sector also detracted from relative performance to the S&P 500. These were the only two sector exposure in QQQ that detracted from relative vs. the S&P 500.

QQQ’s overweight exposure to Broadcom, Adobe and Nvidia were the largest contributors to relative performance vs. the S&P 500. Broadcom, Adobe and Nvidia had average weights during the month of 4.91%, 1.51% and 8.16%, and returned 21.25%, 24.91% and 12.69%, respectively. Overweight exposure to PDD Holdings, Pepsico and Advanced Micro Devices detracted the most from relative performance vs. the S&P 500 for the month and had average weights of 0.66%, 1.57% and 1.77%, respectively. PDD Holdings, Pepsico and Advanced Micro Devices returned -11.24%, -3.85% and -2.81%, respectively.

Adobe performed well during the month of June with a positive earnings announcement being the primary catalyst. Revenue was announced at $5.31 billion vs. the estimate of $5.29 billion. Revenue from their Digital Media and Digital Experience segments beat estimates as total revenue grew 12.4% year-over-year. Adjusted earnings-per-share also exceed expectations and was announced at $4.48 vs. the $4.40 consensus.⁸ An upgrade to next quarter’s and the company’s full fiscal year financial forecasts also contributed to the stock’s move up. The software company is expecting adjusted earnings-per-share of $4.50 - $4.55, up from $4.48. For the full fiscal year, Adobe raised expected revenue from $21.46 billion to $21.50 billion. The company noted that they have seen an acceleration of subscribers upgrading their plans to access their artificial intelligence (AI) enabled services. At the center of this is Firefly, a family of generative AI models that integrates into several of their existing software such as Photoshop, Illustrator and Lightroom. Adobe has showcased the capabilities of Firefly which range from creating images from text, removing items from images and even creating full videos. Investors saw Adobe’s stock rise 14.5% the day after the earnings announcement and rise another 5% by the end of the month.

CrowdStrike’s 22% move up during June started during the first week of the month after a favorable earnings announcement. The cybersecurity company beat on both the top and bottom line. Revenue was announced at $921.04 million, higher than the $904.72 million consensus, while adjusted earnings-per-share came in at $0.93 vs. the estimate of $0.90. The company brought in more subscription revenue than what was expected, $872.17 million vs. $854.83. The product driving subscription revenue growth was their Falcon platform. Falcon provides corporations endpoint security that integrates with the cloud, a needed service for many companies as the threat of cyber-attacks continue to rise. CrowdStrike also raised full year revenue and adjusted earnings-per-share guidance, further assisting the stocks’ move up. Revenue is now forecasted to come in between $3.98 billion and $4.01 billion, up from $3.92 billion - $3.99 billion. Adjusted earnings-per-share guidance was raised from $3.77 - $3.97 to $3.93 - $4.03. The company’s stock rose nearly 12% the following trading day.

On June 10th, S&P Dow Jones announced that CrowdStrike would be added to the S&P 500. This change took effect on June 24th. Stocks added to the benchmark sometimes see a rise after the announcement because any fund that tracks the S&P 500 would also have to add the stock to their strategy. This certainly was the case for CrowdStrike’s stock that rose 7% to a new all-time-high the day of the announcement. CrowdStrike is another example of an innovative company rising to become a leader in their industry. Moreover, CrowdStrike was included in QQQ prior to being added to the S&P 500. The cybersecurity company was added in August of 2021 and has risen over 36% from August 2021 through the end of June 2024. It has outperformed both the S&P 500 and QQQ’s NAV which have returned 26% and 29%, respectively.

Trading Stats

For the month of June, shares traded of QQQ fell by 12.74% month-over-month along with notional value traded falling by 7.33% month-over-month. The month saw an average of 28.98 million shares trade each day (vs. 33.21 million last month) for a value of $13.72 billion (vs. $14.81 billion last month). That compares to averages of 66.46 million shares and $6.21 billion over the life of the fund, and 45.23 million shares and $18.18 billion for past 12 months.