The Invesco QQQ ETF has underperformed the S&P 500 ETF (SPY) since bottoming process in early October. And I also noted that investors have remained tentative over the more richly-valued tech sector, preferring the more defensively-configured SPY. With the market expecting the Fed to remain hawkish through at least H1'23, QQQ's momentum could remain in the doldrums for a while longer. Moreover, last week's employment report suggests that the Fed could force a repricing of the Fed fund rate (FFR) forward curve if the market anticipates a further steepening of the projected terminal rate. Notwithstanding, investors should also bear in mind that the QQQ has outperformed the SPY consistently exiting every bear market/significant pullback over the last 15 years. Hence, I believe the pessimism in the QQQ could be reversed quickly if the market anticipates a less hawkish Fed moving ahead.
QQQ is a tech-heavy ETF with a tech sector weighting of nearly 48%. Consumer discretionary and communications accounted for another 30% weighting. As such, QQQ's top three sectors accounted for nearly 78% of its total weighting. However, the performance of the three sectors in Q3 was relatively poor, with forward guidance also tepid. As such, analysts have turned increasingly pessimistic in their prospects through CY23, as they lowered their earnings estimates markedly. Notably, technology, communication, and consumer discretionary were among the top four sectors that saw the largest earnings estimates cuts for CY23.
As TOP weighted stock (12.95%) in QQQ, AAPL is very hard to ignore.
Investors and analysts are increasingly concerned over Apple's ability to post a solid CQ4 as it faces significant delays over its iPhone Pro series production in Zhengzhou, China. However, from a long-term view, I think AAPL is still bullish and a very good company to invest in.
MSFT and AMZN are also TOP players in QQQ, MSFT weighted 10.37% and AMZN weighted around 5.23%.
Microsoft and Amazon demonstrated that even cloud computing wasn't spared from more scrutiny by its enterprise customers as they curtailed consumption-related cloud spending. However, Amazon's optimism over the secular growth drivers in cloud computing remains resilient. The company updated recently that it's committed to increasing its hiring for AWS, even as it commenced its layoff recently in other divisions. Moreover, by collaborating with Nvidia, Microsoft has continued to drive further commitment toward its cloud-based AI supercomputer ambitions. Therefore, Stratechery stressed that Nvidia bears could be calling for the company's demise too early as it demonstrated its AI-driven competitive moat to drive hyperscaler demand for its A100 and H100 chips. Moreover, Microsoft CEO Satya Nadella emphasized that the company's well-integrated multi-cloud offering has a distinct competitive edge against its keen rivals.
All I am saying is, technology is not dying! All these companies in QQQ are even stronger than before. Just think about the 2000's internet bubble or dot-com bubble.
From the daily chart or weekly chart, QQQ is at a significant place where everything is perfectly settled, just need a single spark can start a prairie fire. And I am very confident, that this will happen soon.
Techonology will be my main focus in December.
Please feel free to express your ideas and thoughts in the comment section.