QQQ Quarterly Outlook Report

Blog Author

Ryan McCormack

Performance Takeaways

1

QQQ outperforms S&P 500 through the first three quarters of 2019.

2

Technology overweight continues to drive QQQ performance.

Market Performance

In Q3, QQQ’s total return performance (+1.23%) lagged the S&P 500’s total return performance (+1.70%) by 47 basis points. QQQ’s overweight to Consumer Discretionary stocks and the security selection effect of the underlying index methodology within the sector, hurt relative performance against the S&P 500. QQQ’s overweight to Consumer Discretionary stocks and the security selection effect within the sector, hurt relative performance against the S&P 500. Within the S&P 500, the Consumer Discretionary sector was up 0.51% for the quarter, while the Consumer Discretionary sector within QQQ was down 4.79% for the 3rd quarter. Specifically, QQQ’s overweight to Amazon.com (AMZN) hurt relative performance asthe stock traded down by 8.33% for the quarter. QQQ’s lack of exposure to Home Depot (HD) and Nike (NKE) also weighed on performance as the names returned 12.24% and 12.17%, respectively. QQQ’s lack of financial holdings was a drag on performance relative to the S&P 500, as the sector returned 2.01% for the third quarter. Meanwhile, Information Technology was the biggest contributor to QQQ’s third-quarter performance, the biggest contributor to QQQ’s relative performance against the S&P 500 as well as the biggest contributor to YTD performance, as the sector is a significant overweight in QQQ (45.73% weighting vs. 21.85% weighting in the S&P 500). From a single stock perspective, QQQ overweights Apple (AAPL), Alphabet (GOOG and GOOGL) and Microsoft (MSFT) were the largest drivers of performance, returning 13.6%, 12.78% and 4.14% for the quarter, respectively.

Invesco QQQ vs. S&P 500 Index

Source: Bloomberg L.P., as of October 4, 2019.
Note: All periods represent calendar years except for 2019, which is through September 30, 2019. Click here for standardized performance. Performance data quoted represents past performance, which is not a guaranteeof 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 receiveif 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, Gross Domestic Product (GDP) numbers for the second quarter (released in the 3rd quarter) hovered around 2.0%. The Q2 advance reading of 2.1% (released on July 26) and the second & third Q2 readings (released on August 29 and September 26, respectively) both showed GDP growing at a 2.0% rate. The labor market continues to be a bright spot with the most recent unemployment rate touching 3.5%, matching a 50-year low, and a number not seensince 1969.

United States Unemployment Rate September 1969 - September 2019

Source: Bloomberg L.P., as of September 30, 2019.

Single Stock Performance

The best-performing stock for the third quarter was KLA Corporation (KLAC), which rose by 35.67%. The highlight for performance was on August 6th after the chipmaker announced better-than-expected Q4 (ending in June) earnings. The $1.78Earnings Per Share (EPS) beat analysts’ expectations of $1.74, propelling shares higher by 7.26%. The results prompted a number of research analysts to revise price targets higher for KLA Corporation shares.

Outlook

Investors’ attention has been revolving around Federal Reserve Policy, US political uncertainty and US-China Trade relations. On September 18th the Federal Open Market Committee (FOMC) cut interest rates by 0.25% to a range of 1.75% - 2.00%. The move was largely anticipated by the market, and in its forecast, the Federal Reserve said it does not anticipate additional rate cuts in 2019 and 2020. Despite the forecast, dissension exists between individual policymakers as some members wanted the Fed to hold its prior range, others supported the cut with no further action for the year while still others favor at least another rate cut this year. Politicaluncertainty continues to rile markets as growing support for Elizabeth Warren is viewed as negative for the stock market; particularly in the Health Care, Technology,Financial and Energy sectors. Investors are also following the impeachment inquiry around President Trump closely, centered around a phone call, a new Ukrainian president, the Bidens and an unnamed whistleblower. On the trade front, there appears to be cautious optimism around the United States and China coming to a trade agreement with many expecting an agreement to be signed at a November Summit in Chile. Any trade deal between the worlds’ largest two economies has been viewed as mainly positive, as it helps to ease existing uncertainty.

Important Information Disclosure
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 September 30, 2019: MSFT (11.5%), AAPL (10.9%), AMZN (9.3%), FB (4.7%), GOOG (4.6%), GOOGL (4.0%), INTC (2.7%), CSCO (2.5%), CMCSA (2.5%), PEP (2.3%). The Nasdaq-100 Index comprises the 100 largest non-financial companies traded onthe Nasdaq. BPS: Refers to basis point which is a common unit of measure for interest rates and other percentages in finance. Holdings are subject to change and are not buy/sell recommendations. 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 opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ fromthose of other Invesco investment professionals.

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