Market outlook QQQ quarterly outlook report

Performance Takeaways

• Invesco QQQ’ NAV posted one of its strongest quarterly performances (3/31/26 – 6/30/26), with a total return of 27.68%, outperforming the S&P 500 which returned 15.20%
• QQQ’s overweight exposure and differentiated holdings in the Technology sector and its underweight exposure and differentiated holdings to the Energy sector (per Industry Classification Benchmark- ICB) were the largest contributors to relative performance against the S&P 500 Index.
• The strong returns in major U.S. equity indices masked the volatility actually experienced during the quarter as investors focused on conflict in the Middle East, concerns around AI-focused companies and a potential shift in Federal Reserve monetary policy.

QQQ Q1 Highlights

Nasdaq implemented a “Fast Entry” provision to the Nasdaq-100’s methodology in May. While this was only one of a few changes that occurred, the new Fast Entry rule received the most attention as SpaceX’s initial public offering (IPO) occurred in June. The key aspect of the rule is that it allows companies that have recently gone public be added to the Nasdaq-100, and QQQ, as early as 15 days after the IPO. If the total market capitalization of the company places it in the top 40 companies, then it is eligible for Fast Entry. The free float, the portion of a company's outstanding shares that is available for public trading in the market, is compared to the total market cap and if it is less than one third then the free float value is multiplied by three. That number is used to determine the weight of the new security in the Nasdaq-100 and QQQ.

SpaceX went public on June 12^th, 2026 with a free float of approximately 5%. It was announced on June 26^th after market close that it would be included in the index and QQQ, effective on July 7^th, prior to market open. It was anticipated that SpaceX would receive a weight between 1.25% and 1.35%.

Even with the Magnificent 7¹ underperforming, the Invesco QQQ ETF’s (QQQ) NAV rose by 27.68% (3/31/2026 – 6/30/2026). QQQ outperformed the S&P 500’s total return of 15.20% and the Russell 1000 Growth Index’s² 16.74% quarterly return. Value oriented companies underperformed with the Russell 1000 Value³ up 13.87%. Small-cap performed well as shown by the 21.49% return of the Russell 2000.⁴ Six sectors (per Industry Classification Benchmark- ICB) out of the ten that QQQ has exposure to finished in positive territory for the quarter with seven out of ten sectors positively contributing to relative performance against the S&P 500 Index.

QQQ’s overweight exposure and differentiated holdings in the Technology sector and underweight exposure and differentiated holdings in the Energy sector were the largest contributors to relative performance against the S&P 500 Index. For the quarter, the Technology sector averaged a 64.75% weight in QQQ (vs. a 43.28% weight in the S&P 500) and returned 45.14% (vs. 29.07% in the S&P 500). Real Estate was the worst performing sector in QQQ for Q2 with absolute performance of -17.70% and had an average weight of 0.04%. Overweight exposure and differentiated holdings in the Consumer Discretionary sector were the largest detractor to relative performance vs. the S&P 500. Consumer Discretionary had an average weight of 18.74% and returned 1.71%.

Single Stock Performance

The best-performing stocks in QQQ for Q2 were Micron Technology (241.67%), Intel (216.41%) and Marvell Technology (200.89%). The worst performers for the quarter were Charter Communications (-41.84%), Insmed (-39.70%) and Intuit (-39.44%).

Invesco QQQ (NAV) vs. S&P 500 Index

Market Drivers During Q2

The second quarter of 2026 was one of the strongest periods for U.S. equities in recent years, with the S&P 500 and Nasdaq-100 posting their best quarterly performances since 2020. In Q2 of 2020 the S&P 500 and Nasdaq-100 returned 20.5% and 30.2%, respectively, and was the last quarter that exceeded the Q2 2026 performance of both indexes. Quarterly performance for market gains were reflected by a combination of powerful fundamental and macroeconomic catalysts that appeared to inspire many investors to purchase equities. While several factors influenced returns during the quarter, many believed that the primary drivers of stock performance were accelerating artificial intelligence (AI) investment, strong corporate earnings growth, easing geopolitical tensions in the Middle East and evolving expectations for Federal Reserve policy.

One of the more influential catalysts was stronger-than-expected corporate earnings. Throughout the quarter, many companies reported robust revenue growth, resilient margins, and healthy demand despite concerns about inflation and slowing economic activity. Large-cap technology firms were particularly influential, as their earnings results appeared to support strong fundamental growth. Beyond technology, many sectors demonstrated resilience, helping many investors gain confidence that the economic expansion remained intact. The combination of solid earnings growth and expanding profit margins may have reduced fears of a profit slowdown and could have helped provide a basis for the move up.

A second major catalyst was the continued buildout of AI infrastructure. Demand for AI computing power drove many hyperscale cloud providers and technology companies to increase capital. Many investors gravitated towards companies directly benefiting from the surge in AI infrastructure spending, particularly semiconductor manufacturers, memory chip producers and other firms enabling the expansion of data center capacity. As the quarter progressed, investors increasingly differentiated between companies currently generating revenue and earnings from AI adoption and those still investing heavily in future opportunities, seemingly favoring businesses with demonstrated profitability and strong cash flows.

Geopolitical developments also played a significant role in driving market performance during the quarter. Early concerns surrounding the U.S. - Iran conflict created volatility and contributed to higher oil prices. However, as tensions eased and a ceasefire emerged, energy markets reversed much of the gain seen in March and early April. The decline in oil prices reduced some inflation concerns and improved the outlook for consumers and businesses alike. Lower energy costs helped support expectations for continued economic growth while reducing fears that geopolitical instability would disrupt global markets. Investors worried less about worst-case scenarios which helped contribute to the broad rally across equity indices.

Finally, changing expectations regarding Federal Reserve policy influenced investor behavior throughout the quarter. Many market participants closely monitored inflation data, labor market trends, and Federal Reserve communications for clues about the future path of interest rates. While policy uncertainty remained elevated, the Federal Reserve’s willingness to maintain a restrictive stance at the June Federal Open Market Committee (FOMC)⁵ meeting reinforced the view that interest rates could remain higher for longer. Although economic growth remained resilient, persistent inflation pressures and a still-solid labor market reduced expectations for imminent policy easing. New FOMC Chairman Kevin Warsh stated that there is potential for the Committee to be less transparent on monetary policy going forward. The combination of these two factors caused many investors to question if volatility in interest rates will rise or fall going forward.

Year-over-Year Inflation, Consumer Price Index⁶ (%)

Outlook

With the messaging from Kevin Warsh that the FOMC will provide less transparency going forward, economic releases will play a larger role for many investors speculating on future monetary policy. As inflation readings have trended higher and the U.S. job market has remained steady, the potential for a rate hike has become a concern for some. Productivity, gross domestic product (GDP) growth, employment readings and inflation in both end good and production costs will be key areas of focus.

While a cease fire had been agreed to between the U.S. and Iran, incidents of violence still occurred. Peace talks appeared to move forward but there was no official treaty or agreement of long term peace announced. Reports came to light that the two sides were too far apart on issues such as Iran’s nuclear program, economic sanctions and security concerns in the Middle East region. If no progress or escalation occurs, the potential for higher energy prices, leading to higher inflation, and increased volatility becomes greater.

Capital expenditure will continue to be a focus for many investors. Looking at financial guidance issued from companies, capex is projected to reach over $800 billion in 2026 in relation to the AI infrastructure build out. Therefore, revenue growth and profit margins will be watched closely. Amongst the well-known QQQ companies, Netflix is the first to announce on July 16^th, followed by Tesla on the 22^nd and Alphabet and Intel on the 23^rd. Microsoft will announce on July 28^th, followed by Meta Platforms and Apple on the 30^th. Amazon announces results on July 31^st with Nvidia and Micron arriving on August 28^th and September 23^rd, respectively.