QQQ quarterly outlook report

Performance Takeaways

• Invesco QQQ’ NAV returned 2.42% and underperformed the S&P 500 Index’s total return of 2.65% in Q4 2025.
• QQQ’s differentiated holdings in the Consumer Discretionary sector and underweight exposure to the Industrials sector (per Industry Classification Benchmark- ICB) were the largest detractors to relative performance against the S&P 500 Index.¹
• The proxy vote proposing to update QQQ from a unit investment trust to an open-end ETF was passed by shareholders on December 19^th.
• QQQ and the NASDAQ 100 Index went through their annual reconstitution which occurred after the close on December 19th. The reconstitution led to six companies being added and six companies being removed.

QQQ Q4 Highlights

Invesco QQQ ETF (QQQ) rose by 2.42% (on an NAV basis, 09/30/2025 – 12/31/2025). QQQ underperformed the S&P 500’s total return of 2.65% but outperformed the Russell 1000 Growth Index’s 1.12% quarterly return.² Value oriented companies were the winners for the quarter with the Russell 1000 Value up 3.81%.³ Four sectors (per Industry Classification Benchmark- ICB) out of the ten that QQQ has exposure to finished in positive territory for the quarter with six sectors positively contributing to relative performance against the S&P 500 Index. QQQ returned 20.77% for the calendar year 2025 and outperformed the S&P 500 Index (17.88%) by 2.89% and the Russell 1000 Growth Index (18.56%) by 2.21%. 2025 was the third year in a row that QQQ returned over 20% and outperformed the S&P 500.⁴

QQQ’s overweight exposure to the Consumer Discretionary sector and underweight exposure in the Industrials sector were the largest detractors to relative performance against the S&P 500 Index. For the quarter, the Consumer Discretionary sector averaged a 17.81% weight in QQQ (vs. a 14.06% weight in the S&P 500) and traded lower by 2.21% (vs. -0.29% in the S&P 500). Health Care was the best performing sector in QQQ for Q4 with absolute performance of 17.91% and an average weight of 4.71%. The Technology sector was the top contributor to relative performance vs. the S&P 500 caused by its differentiated holdings. Technology had an average weight of 64.64% in QQQ vs. the S&P 500’s 41.41% weight.

On December 19^th, shareholders of QQQ voted to approve proposals to modernize Invesco QQQ, restructuring it from a unit investment trust ETF to an open-end fund ETF, and changing its governance structure to a board of trustees. As part of this conversion, the fund’s total expense ratio decreased from 0.20% to 0.18%. The reclassification also will provide the opportunity for QQQ to reinvest income from the underlying securities and participate in securities lending. There will be no tax implications from this conversion for QQQ investors.

QQQ and the NASDAQ 100 Index went through their annual reconstitution which occurred after the close on December 19^th. The reconstitution led to six companies being added and six companies being removed. The additions were Alnylam Pharmaceuticals, Ferrovial SE, Insmed Inc., Monolithic Power Systems Inc., Seagate Technology Holdings and Western Digital Corp. The six companies removed were Biogen, Lululemon, ON Semiconductor, GlobalFoundries, the Trade Desk and CDW. Five were graduates from the Invesco NASDAQ Next Gen ETF (QQQJ) with one of the five having been in QQQ previously.

Single Stock Performance

The best-performing stocks in QQQ for Q4 were Micron Technology (70.75%), Warners Bros. Discovery Inc. (47.57%) and Regeneron Pharmaceuticals (37.44%). The worst performers for the quarter were Strategy Inc. (-52.84%), Zscaler (-24.94%) and Charter Communications Inc. (-24.94%).

Market Drivers During Q4

The Federal Reserve’s policy was a primary focus for many investors during the last quarter of 2025. The Federal Open Market Committee (FOMC) met twice during the quarter, in October and December.⁵ Similarly to the September meeting, the FOMC enacted a 0.25% rate cut to the Fed Target Funds rate in both meetings.⁶ This put the range for the target rate between 3.50% and 3.75% at the end of the year. Federal Reserve Chairman Jerome Powell cited the cooling labor market as a potential concern while inflation continued to move closer to their long-term target. There was a total of three rate cuts in 2025 which caused yields on shorter term bonds to fall. This is characterized as a steepening yield curve which is sometimes associated with future economic growth.

Investors started to question the strength of the current trend in AI during the quarter. Coming into question was how projects were being financed along with the amount of time and revenue these companies would have to raise to cover the capital of the projects. Many investors started to shift focus towards companies that have been demonstrating a clearer path to monetization of AI and achieving profitability sooner.

The U.S. government shutdown started on October 1^st and was resolved on November 12. The 43-day shutdown was the longest in U.S. history. The resolution included partial funding through the end of September 2026 along with a new Continuing Resolution through January 2026. One byproduct of the shutdown was that there were no data releases for inflation and jobs data normally compiled by government agencies.

Softening labor data for the U.S. did weigh on equity returns at certain points during the quarter. 2025 was the first year since 2020 that there were three negative Non-Farm Payrolls releases in one year. December also saw four Initial Jobless Claims prints above 250k. The weakening in the U.S. labor market was also seen in the Unemployment rate which moved up to 4.6% by the end of the year.⁷

Outlook

With questions around future monetary policy from the FOMC, the strength in the current AI trend and weakening labor market, there will be several areas of focus for investors in 2026. Investors’ appetite for return on investment of AI spending may continue to grow and earnings will be watched closely for any slowing of revenue and AI investment in the future. Cash flow may be one area of financial statements that will provide insight into the current trend.

Many investors will be watching the release of initial jobless claims and continuing claims to see if more people are filing for unemployment benefits as well as staying on benefits. Nonfarm Payrolls will also be watched to see if the labor market will continue to weaken.⁸ The FOMC has indicated that the balance of risks have shifted with employment being more of focus for future policy.

As always, earnings releases for QQQ companies are scrutinized very closely. Not only are the business results important, but revenue and earnings guidance along with commentary about future outlook can have outsized effects on stock price performance. Capital expenditures will continue to be a focus along with new and growing revenue from AI investments. Amongst the QQQ heavyweights, Netflix is the first to announce on January 20^th followed by Tesla and Meta Platforms on the 28^th. Apple will announce on the 29^th with Palantir on February 2^nd, Alphabet on the 4^th and Amazon on the 6^th. Nvidia and Broadcom will be the last heavyweights to release quarterly results and will occur on February 26^th and March 6^th, respectively.