Invesco QQQ monthly review

Overview

• For the month of July, QQQ saw an NAV total return of 2.39% and outperformed the S&P 500 Index, which returned 2.24%. The Russell 1000 Growth Index returned 3.78%, outperforming QQQ, while the Russell 1000 Value Index returned 0.57%, underperforming QQQ.¹
• QQQ’s relative outperformance vs. the S&P 500 Index was driven by its underweight exposure within the Health Care sector and its overweight exposure in the Technology sector. The Technology and Utilities sectors were the biggest contributors to absolute QQQ performance.
• QQQ saw outflow of approximately $566 million.
• QQQ ended the month with $361.14 billion in AUM and remained the 5th largest ETF in the US (based on AUM).
• For the month of July, shares traded of QQQ declined by 9.91% month-over-month and notional value traded decreased by 6.40% month-over-month.²

Market Recap

QQQ extended its monthly positive performance streak to four months after it advanced by 2.39% on an NAV total return basis for July. Markets closed the month higher as investors digested new developments on the tariff front and speculated when the Federal Reserve (Fed) may resume cutting interest rates. Both the Nasdaq-100® Index and S&P 500 Index hit new all-time highs on July 28^th, before retreating into the end of the month, although both finished in positive territory for July. The S&P 500 ended July higher by 2.24% on a total return basis. Large cap growth and value also finished in positive territory after the Russell 1000 Growth advanced by 3.78% and outperformed the Russell 1000 Value which increased by 0.57% for July. For the year, QQQ is higher by 10.83%, and from its yearly low on April 8^th, is higher by 36.03%.

Attention at the beginning of the month was focused on President Donald Trump’s July 9^th deadline for the suspension of reciprocal tariffs. This was instituted following the initial announcement of country-specific tariffs on the April 2 Liberation Day, and the subsequent 90 day pause on implementation that was announced a week later. On July 7, it was announced that the pause would be further extended to August 1 with no additional extensions. Over the course of the month, investors saw the announcement of numerous trade deals with countries such as Japan, Korea and others. The Japan deal announced on July 22 was notable in that the baseline reciprocal tariff was decreased to 15% from a previously announced 27.5% rate. The 15% figure will also apply to cars and car parts which are subject to a baseline 25% tariff rate from all other importers into the United States. Automobiles are a key component to the Japanese economy and Japan is home to some of the world’s largest auto companies including Toyota, Honda and Nissan. Japan also agreed to invest $550 billion into the US in combined public and private money.

One of the most anticipated deals was announced on July 27, when it was reported that a trade agreement between the US and European Union (EU) had been reached. It included a reduction of reciprocal tariffs to 15% (down from the initial 30%). The EU also agreed to purchase $750 million in US energy, primarily liquified natural gas, nuclear and oil and intends to invest $600 million into the US. It has been discussed that the $600 million figure is not a guarantee as the investment will be from private companies as the EU does not have the authority to guarantee these investments. All of these deals followed the announcement of a trade agreement with China in late June.

In the middle of the month, the June Consumer Price Index (CPI) was released and was viewed as fairly benign, with readings coming in close to expectations.³ There were some concerns among investors that the data would start showing the adverse effects of tariffs, with spikes in the reading. However, year-over-year CPI was reported at 2.7%, only slightly higher than the 2.6% forecast, while the core CPI reading (which strips out the volatile food and energy components) was reported at 2.9%, in-line with economists’ estimates. On a month-over-month basis headline CPI was reported at 0.3%, in-line with expectations while the core CPI came in at 0.2%, below the 0.3% consensus estimate.

The Federal Reserve met at the end of the month and held its target rate steady at 4.25% – 4.50% for the fifth consecutive meeting.⁴ The decision to hold rates steady was not without fanfare, as two Federal Reserve governors, Michelle Bowman and Christopher Waller voted “no” on the rate decision and advocated for the Federal Open Market Committee (FOMC) to cut rates.⁵ It was reported that this was the first time two governors dissented with a policy decision since 1993. From the statement, the language around inflation remaining “somewhat elevated” did not change and Chairman Jerome Powell noted in his press conference that “We believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments.” That being said, Powell did caution that the Fed is still watching for the impact of tariffs. He referenced the fact that higher prices are showing up in some areas of the market, while broad economic effects and flow through to overall inflation have yet to be realized. Powell played both sides of the coin and mentioned that a base case could be short-term inflationary effects but further cautioned about the potential for “more persistent” pressure to prices. Through this lens, he reiterated that the Fed would remain data dependent. From the press conference: “For the time being, we’re well positioned to learn more about the likely course of the economy and the evolving balance of risks before adjusting our policy stance. We see our current policy stance as appropriate to guard against inflation risks”.

QQQ Performance

From a sector perspective, six of the ten sectors represented in QQQ finished in positive territory for July. Real estate was the best performing sector, represented by only CoStar Group, which advanced by 18.40%. QQQ’s relative outperformance versus the S&P 500 was driven by its underweight exposures to the Health Care sector and overweight exposure to the Technology sector. The Health Care sector averaged a 4.82% weighting within QQQ and declined by 0.05% compared to an 8.68% average weighting in the S&P 500 and total return of -0.27%. The Technology sector averaged a 61.26% weighting for the month within QQQ and saw a total return of 2.90%. This compares to the sector’s average weight in the S&P 500 of 38.67% for July with a total return of 2.07%.

Standardized performance - Performance quoted is past performance and cannot guarantee 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.

Consumer Discretionary and Telecommunications were the largest detractors from QQQ relative performance vs. the S&P 500, as well as the largest detractors from QQQ absolute performance for the month. The Consumer Discretionary sector averaged an 18.97% weighting (vs. 14.45% in the S&P 500) and declined by 2.06% (compared to a 0.39% advance in the S&P 500 Index). The Telecommunications sector averaged a 4.16% weighting in QQQ (vs. 2.08% in the S&P 500) and declined by 4.21% in QQQ (vs. a 0.75% decline in the S&P 500 Index) for July.

Over the course of July, QQQ did not see a trading session that brought a 1% move in either direction from a stock market open to the close. Performance on July 3 represented the largest up move of the month with a 0.99% advance, while the start of the month saw the largest down session at -0.89% on July 1.

July 15 brought the best performance day of the month for two notable semiconductor names within QQQ; Advanced Micro Devices advanced by 6.41% while NVIDIA increased by 4.04%. Advanced Micro Devices was the best performing stock in QQQ for July after increasing by 24.25%, while NVIDIA was the largest contributor to QQQ absolute performance for the month. NVIDIA averaged a 9.54% weighting for July and advanced by 12.58%. On the 15^th the United States government announced that after a review it would allow Advanced Micro Devices and NVIDIA to resume sales of its chips the MI-308 and H20, respectively, to China. The change in policy is expected to add billions in revenue for each company in the coming years after the reversal in trade policy.

The last day of the month saw two QQQ heavyweights, Microsoft and Meta end July on a high note after both companies reported earnings after the close on July 30^th. Microsoft was the second biggest contributor to QQQ absolute performance for July and increased by 7.26% for the month. The company reported its fiscal Q4 earnings after the close on July 30^th. Revenue of $76.441 billion exceeded the consensus analyst estimate of $73.838 billion by nearly 3.5%. Adjusted earnings per share (EPS) was reported at $3.65, over 8% better than the $3.373 expectation.⁶ The stock was propelled by sales in its Azure cloud computing business, which grew by 39%, better than the 34% forecast by analysts. Microsoft noted that Azure growth in the current quarter is expected at roughly 37%. Investors were also encouraged by the announcement that the company will spend $30 billion in the current quarter on building out data centers for its AI capabilities. Shares of Microsoft surged by 3.95% in the session immediately following the earnings release (July 31). Shares of Meta Platforms jumped by 11.25% on July 31 in the trading session immediately following its better-than-expected Q2 earnings report. The social media giant reported revenue of $47.516 billion, beating the consensus analyst forecast of $44.832 billion by approximately 6%. Q2 EPS of $7.14 represented a 21.28% upside surprise to the $5.887 average analyst estimate. Investors reacted positively after Meta provided Q3 revenue guidance of $47.5 billion - $50.5 billion, better than analysts’ expectations of $46.2 billion. The company also noted that it expects capital expenditure (capex) spend for the year to be $66 billion - $72 billion, slightly higher than its previous forecast of $64 billion - $72 billion in April.⁷

Netflix was the largest detractor to relative performance as the stock averaged a 3.05% weighting in QQQ for July and decreased by 13.42% for the month. The stock experienced its worst day of the month on July 18, the session immediately following the release of Netflix’s Q2 earnings report where it fell by 5.10%. Despite Q2 figures that exceeded forecasts, along with current quarter guidance that was higher than estimates, investors seemed to focus on full-year guidance that fell short of expectations. The company announced revenue of $11.079 billion, slightly better than the $11.062 billion estimate and earnings per share of $7.19 which also slightly beat the consensus forecast of $7.071. The streaming giant noted that full-year sales are expected at $44.8 billion - $45.2 billion with operating margin at 29.5% and free cash flow between $8 billion to $8.5 billion. While all three guidance metrics were raised from prior estimates, they were still below analysts’ expectations.

Trading Stats

For the month of July, shares traded of QQQ declined by 9.91% month-over-month along with notional value traded decreasing by 6.40% month-over-month. The month saw an average of 41.91 million shares trade each day (vs. 46.26 million last month) for a value of $23.09 billion (vs. $24.67 billion last month). That compares to averages of 65.33 million shares and $6.76 billion over the life of the fund, and 39.64 million shares and $19.76 billion for the past 12 months.