Market outlook

Invesco QQQ quarterly outlook report

Aerial view of a colorful highway road infrastructure representing the flows from Invesco QQQ ETF quarterly performance.
Performance Takeaways

Invesco QQQ’s NAV underperformed the S&P 500 Index for the fourth quarter as the Federal Open Market Committee (FOMC) delivered hawkish commentary into year-end.


QQQ’s overweight allocations and underperformance within the Consumer Discretionary and Information Technology sectors were the biggest drivers of relative underperformance versus the S&P 500 Index.

QQQ Performance

Invesco QQQ ETF (QQQ) returned -0.09% in Q4 (on an NAV basis, 9/30/2022 – 12/31/2022) and underperformed the S&P 500 by 7.64% which returned +7.55%. Investors’ focus remained firmly on inflation and action from the FOMC. Commentary in the tail end of the year suggesting the potential for lower economic activity and a weaker job market in 2023 weighed on QQQ performance.

QQQ’s overweight exposure and underperformance within the Consumer Discretionary and Information Technology sectors were the largest detractors to relative performance against the S&P 500 Index. Consumer Discretionary averaged a 14.92% weighting in QQQ (vs. 10.57% in the S&P 500) and fell by 23.01% (vs. -10.17% in the S&P 500) for the quarter. Consumer Discretionary was one of only two sectors in QQQ and the S&P 500 Index with negative performance for the quarter, the other being Communication Services. Information Technology averaged a 49.86% weighting in QQQ (vs. 26.09% in the S&P 500) and gained 2.96%, underperforming the sector in the S&P 500 Index which returned 4.74%

Tesla (-53.56%) and (-25.66%) were the largest detractors from QQQ’s relative performance in the Consumer Discretionary sector. QQQ averaged a 3.48% weighting to Tesla (vs 1.57% in the S&P 500 Index) and a 5.95% weighting to (vs. 2.71% in the S&P 500 index). Tesla started the quarter under pressure culminating in a mixed Q3 earnings report on October 19th. The electric automaker announced Q3 Earning Per Share (EPS) of $1.05 which beat the average analyst expectation of $1.01 but reported revenue of $21.5 billion that missed expectations for $22.1 billion. Tesla pointed to production and delivery issues as the reason for the miss although CEO Elon Musk noted that demand for vehicles remained strong into Q4. Shares fell by 6.65% in the trading session that followed. The company also ended the year under pressure as shares tumbled by 11.41% on December 27 after the company announced a temporary suspension of production at its Shanghai factory on December 24th. The suspension came a day earlier than its anticipated closure of December 25th – January 1st. Rising COVID infections after the rollback of some of China’s COVID policies added to speculation around the early closure. suffered its worst performance day of the quarter after its release of Q3 earnings, falling by 6.80% on October 28th. The day prior reported EPS that beat analyst expectations but revenue of $127.101 billion missed expectations of $127.636 billion. Shares were lower by over 20% in extended trading after the company projected Q4 revenue of $140 billion-$148 billion, lower than analyst expectations for $156 billion. The lackluster forecast exacerbated worries about the holiday season amid a weakening macroeconomic backdrop.

Despite all but two sectors in QQQ finishing the quarter in positive territory, the drag from Consumer Discretionary pushed the fund into the red for Q4. Continued concerns around higher rates to combat inflation and the subsequent strain on economic activity continue to weigh on the equity markets, particularly among growth stocks. 

Source: Bloomberg L.P., as of 12/31/2022.
Note: All periods represent calendar years. Click for standardized performancePerformance data quoted represents past performance, which is not a guarantee of future results; current performance may be higher or lower than performance quoted. Investment returns, and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. See to find the most recent month-end performance numbers. Market returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times. An investor cannot invest directly in an index. Index returns do not represent Fund returns.

Single Stock Performance

The best-performing stocks in QQQ for Q4 were Moderna (+51.90%), Intuitive Surgical (+41.57%) and Dexcom Inc. (+40.60%). The worst performers for the quarter were Tesla (-53.56%), Lucid Group. (-51.11%) and Crowdstrike Holdings (-36.11%). 

Annual Reconstitution

The annual reconstitution of the Nasdaq 100 Index took place after the close on Friday, December 16th, effective before market open on Monday, December 19th.[i] The reconstitution saw six new companies enter the index: Baker Hughes, CoStar Group, Diamondback Energy, GlobalFoundries Inc., Rivian Automotive and Warner Brothers Discovery.

Following the reconstitution, sector representation within the Nasdaq 100 looked similar as Information Technology, Communication Services and Consumer Discretionary represented the largest overweight sectors relative to the S&P 500 Index. The most glaring difference was Energy, which now has representation within the Nasdaq 100 Index after the additions of Baker Hughes and Diamondback Energy.

Six companies were removed from the Nasdaq 100 Index at the reconstitution: Baidu Inc., DocuSign, Inc., Match Group Inc, Splunk Inc., Skyworks Solutions, Inc. and VeriSign, Inc.

Market Drivers During Q4

As has been the case for nearly the entirety of 2022, investors remained hyper focused on inflation and the Federal Reserve’s (Fed) response to climbing prices in Q4. Recently, any potential investor optimism in the equity markets has been based on declining inflation leading to the FOMC taking a less aggressive policy stance in the future leading to smaller rate increases, then a pause in rate hikes and eventually rate cuts. Two FOMC meetings took place in Q4 (November and December) and the prospect and timing for equity optimism looked different after the conclusion of each of these meetings.

First, Q4 brought a continued decline of inflation. Consumer Price Index (CPI) was reported three times during the quarter and showed a slowdown in the inflation reading.[ii] The September reading (reported in October) was 8.2%, the October reading (reported in November) was 7.7% and the November reading (reported in December) was 7.1%. November marked the fifth consecutive month that year-over-year CPI has declined and represented the lowest CPI reading since December 2021.

Q4 also brought continued strength of the labor market. The Unemployment rate ticked up slightly from 3.5% in September to 3.7% in October and November but remained near historically low levels. During the quarter, no initial jobless claims reading was reported over 241,000 for any week, and in the week ended 12/30/2022 was reported at 204,000, the lowest weekly level of Q4.

The November Fed meeting over the first two days of the month brought the fourth consecutive 75 basis point hike in the Fed Funds target rate to 3.75%-4.00%.[iii][iv] In comments around the meeting, Fed Chairman Jerome Powell referenced that as time goes on, the speed of rate hikes becomes less important versus the terminal rate and the length, suggesting raising rates to a higher level and keeping them there until progress is made against inflation.

Headlines that suggested more accommodative Fed policy may be forthcoming have driven equities higher at various times during the year. November brought two distinct examples of this investor mentality. The first, on November 10th was driven by the release of the October CPI report (7.7% year-over-year) Most investors took this reading along with Chairman Powell’s comments at the November meeting as a sign that the December Fed meeting could bring a less hawkish policy stance. QQQ surged by 7.38% during the session. The second example, on November 30th was driven by a speech at the Brookings Institution where Chairman Powell referenced how it makes sense to moderate rate hikes, and further reiterated that “The time for moderating the pace of rate increases may come as soon as the December meeting.” QQQ advanced by 4.56% for the session.[v]

The December Fed meeting did bring investors what they expected: the pace of rate increases moderated as the FOMC raised the target rate by 50 basis points to 4.25% - 4.50%. However, the meeting statement and press conference took a hawkish tone and overshadowed the smaller rate hike and previous day’s November CPI report that showed the lowest level of year-over-year inflation since December 2021. During the meeting, the Fed revised its forecasts down for Gross Domestic Product (GDP), up for unemployment and up for inflation. 2023 GDP was revised to 0.5% GDP for 2023 (down from 1.2% in September). The 2023 unemployment rate was revised up to 4.6%, up from its previous projection of 4.4%. The Fed’s preferred gauge of inflation, the Personal Consumption Expenditure Index was revised up to 5.6% in 2022 (up from 5.4%) and 3.1% in 2023 compared with a September estimate of 2.8%.[vi] Additionally, according to the dot plot, Fed officials expect that the Fed Fund rate will be 5.1% at the end of 2023 (up from 4.6% in the September meeting), and 4.1% at the end of 2024 (up from 3.9% in September meeting).[vii] The upward revisions go along with Chairman Powell’s comments from the November meetings around the terminal rate being at a higher level for longer.

In the press conference, Fed Chairman Powell noted that “Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions.” Powell expanded on why the rates and inflation forecasts climbed higher and outlined that the expectation that services inflation will be slow to come down since the labor market is strong, wage growth is still high, and wages feed most directly into services prices. The hawkish commentary, caution around lower economic growth and potential labor market impact weighed on market sentiment and drove equities lower into year-end.


As we look to 2023, QQQ investors will be watching earnings announcements from heavyweight companies Apple, Microsoft, Amazon, Alphabet, Tesla and Meta Platforms. Microsoft and Tesla are the first companies to announce Q4 results on January 25th, while Alphabet, Meta Platforms, Amazon and Apple will announce in the first three days of February. Calendar Q4 earnings announcements are important as most of these companies see the largest annual revenue and EPS figures from this timeframe. 2022 earnings estimates for the Nasdaq 100 Index had been revised lower since March as the economic backdrop continued to become challenging. Investors will likely pay keen attention around forward guidance or deteriorating business trends that these companies report.

The market will more than likely remain dependent on action from the FOMC. The committee will meet eight times during the year and two of these meetings are scheduled for Q1 (Jan 31-Feb 1 and March 21-22). Comments around the progress against inflation and any indication of change in policy will be watched closely. Expect market activity to remain elevated around releases of price data and any changes in the labor picture.

Sentiment remains mostly negative in the market. Despite declining inflation, the Fed will likely continue to raise rates throughout 2023 until inflation moves closer to their 2% long-term target. The cumulative effects from the Fed’s restrictive monetary policy may start to show in the economic data and ultimately prove Chairman Powell’s comments around below trend growth and a softening labor market accurate, Investors should continue to use their own risk tolerance and time horizon to determine their asset allocation.


  • 1

    The Nasdaq-100 is a stock market index made up of equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock exchange.

  • 2

    The Consumer Price Index (CPI) measures change in consumer prices as determined by the US Bureau of Labor Statistics. Core CPI excludes food and energy prices while headline CPI includes them.

  • 3

    Fed funds futures are derivatives based on the federal funds rate, the U.S. overnight interbank lending rate on reserves deposited with the Fed.

  • 4

    A basis point is one hundredth of a percentage point.

  • 5

    The Brookings Institution is an independent organization dedicated to the research of public policy issues in the areas of economics, foreign policy, and government.

  • 6

    The Personal Consumption Expenditures Price Index is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services.

  • 7

    The Federal Reserve’s “dot plot” is a chart that the central bank uses to illustrate its outlook for the path of interest rates.

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