QQQ Quarterly Outlook Report

Blog Author

Ryan McCormack

Performance Takeaways

1

QQQ outperforms S&P 500 for the first half of 2019.

2

Technology overweight continues to propel QQQ.

Market performance

Year-to-date, Invesco QQQ has maintained its outperformance against the S&P 500 Index, up 21.54% versus 18.54% on a total return basis — but what about the second quarter in particular? In Q2, QQQ’s total return performance (4.17%) lagged the S&P 500’s total return performance (4.30%) by 13 basis points. QQQ’s lack of financial holdings was a drag on performance relative to the S&P 500, as financials was the best performing Global Industry Classification Standard sector in the S&P 500, finishing the quarter up 7.99% (total return). Meanwhile, information technology was the biggest contributor to QQQ’s second-quarter performance, as well as the biggest contributor to QQQ’s relative performance against the S&P 500, as the sector is a significant overweight in QQQ.

13 technology names advanced by more than 10% (total return) for the quarter. From a single stock perspective, some of the largest individual positions in QQQ outperformed the S&P 500 Index for the second quarter, including Microsoft (MSFT), up 14.00%; Amazon.com (AMZN), which returned 6.34%; and Facebook (FB), which advanced by 15.78%.

Source: Bloomberg L.P., as of July 15, 2019
Note: All periods represent calendar years except for 2019, which is only through July 15, 2019. Click here for standardized performance. Performance 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 invesco.com 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.

Economic backdrop

From an economic standpoint, growth indicators softened during the second quarter as the Institute of Supply Management (ISM) Manufacturing Survey decelerated from 55.3 in March to 51.7 in June. An ISM reading above 50 typically indicates economic expansion, but the number is down from a reading of 60 in June 2018. The labor market continued to be a bright spot, as initial jobless claims throughout the quarter never surpassed 230,000, and the US unemployment rate remained under 4%.

Source: Bloomberg L.P., as of July 15, 2019

Single stock performance

The best-performing stock for the second quarter was Qualcomm (QCOM), which rose by 33.39%. Shares were propelled by the announcement of a “global patent license agreement” and “chipset supply agreement” between Qualcomm and Apple (AAPL). The companies say the agreement ends all ongoing litigation between the tech giants, including litigation with Apple’s contract manufacturers. Apple has agreed to pay royalties and a one-time payment to Qualcomm.

Outlook

Going forward, markets are heading into what is often a seasonally challenging period. Since World War II (1945 to 2018), August and September have been some of the worst-performing months for the S&P 500, with average declines of 15 basis points and 59 basis points, respectively. S&P 500 earnings revisions have started to see downward pressure particularly within financials, energy and real estate investment trusts, while the information technology and consumer staples sectors have been solid. Markets are looking to the July Federal Reserve (Fed) meeting to potentially jump-start growth, as the probability of a rate cut sits at 100%, according to Bloomberg, L.P.

On Thursday, July 18, New York Fed President John Williams and Fed Vice Chairman Richard Clarida both commented on the importance of acting early if US economic growth softens. The dovish comments coincided with investors speculating on whether the Fed will cut rates by 25 or 50 basis points during the July meeting as stocks reacted positively.

Important Information Disclosure
BPS: Refers to basis point which is a common unit of measure for interest rates and other percentages in finance. Institute of Supply Management (ISM) is the first and largest not-for-profit professional supply management organization worldwide. Purchasing Managers Index (PMI) is an economic indicator that surveys purchasing managers at businesses that make up a given sector. All data is from Bloomberg, L.P. as of July 15, 2019, unless otherwise noted. All returns are based off NAV. Invesco QQQ top 10 holdings as of June 30, 2019: MSFT (10.2%), AAPL (10.1%), AMZN (9.9%), GOOG (4.7%), FB (4.5%), GOOGL (4.1%), INTC (3.0%), CSCO (3.0%), CMCSA (2.32%), PEP (2.2%). Holdings are subject to change and are not buy/sell recommendations. The Nasdaq-100 Index comprises the 100 largest non-financial companies traded on the Nasdaq. The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. These comments should not be construed as recommendations. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations. The Global Industry Classification Standard was developed by and is the exclusive property and a service mark of MSCI, Inc. and Standard & Poor's.

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