Invesco QQQ monthly review

Overview

• For the month of October, Invesco QQQ ETF’s NAV returned -0.83% outperforming the S&P 500® Index which returned -0.91%. The Russell 1000 Growth® Index outperformed QQQ which returned -0.33% while the Russell 1000 Value Index underperformed and returned -1.10%.
• QQQ’s outperformance vs. the S&P 500 was driven by its differentiated holdings in the Consumer Discretionary sector. The Health Care sector was the second largest contributor to outperformance driven by its underweight allocation and differentiated holdings.
• QQQ saw inflow of $624.11 million.
• QQQ ended the month with $292.57 billion in AUM and remained the 5th largest ETF in the US (based on AUM).
• For the month of October, shares traded of QQQ fell by 17.92% month-over-month along with notional value traded falling by 14.70% month-over-month.¹

Market Recap

After setting a new all-time high earlier in the month on the 18th, the S&P 500 pared some of the gains and finished the month relatively flat from the end of September. QQQ’s NAV approached the all-time high closing price of $502 per share but managed to only reach $500 before finishing at $483. With no Federal Open Market Committee (FOMC) meeting during the month, many investors turned their attention to economic releases, interest rates and earnings announcements.² With the U.S. Presidential election arriving on November 5th and the next FOMC meeting on the 6th and 7th, price action in equities remained within a tight range as the difference of the high and low closing for the month in the S&P 500 was only 3%.

The VIX Index, a commonly used gauge for volatility, remained in an elevated range for the month.³ Also known as a measure of fear amongst investors, the VIX had an average reading over 20 for the month of October. Year-to-date through the end of September, the average was just under 15. The higher readings indicated a heightened level of concern and the potential for future volatility with the election and next FOMC meeting looming.

Investors saw interest rates rise during October as the market digested the messaging from the previous FOMC meeting and new economic releases. Although the FOMC lowered the target rate by 0.50% in September, interest rates on the shorter end and longer end of the curve have risen since then. Coincidentally, the recent low reading on the U.S. 10yr Treasury was on September 17th, the day before the rate cut announcement, and was at 3.62%.⁴ Since then, it has risen 0.66% and finished October at 4.28%, the highest yield on the 10yr since July. The U.S. 2yr Treasury also rose during the same period from 3.60% to 4.17%, a difference of 0.57%.⁵ The spread between the 2yr and 10yr Treasuries’ yield finished at its highest level since June of 2022.

While there had been some expectation that yields would fall once the FOMC started cutting rates, many investors anticipated that the rate cuts would lead to a steepening of the yield curve, longer term maturity bonds yielding more than shorter term maturity bonds.⁶ This is exactly what played out as the 2yr and 10yr spread widen to 0.12%. Contributing to this move was an adjustment of future rate cut expectations. The day after the September FOMC rate cut, Bloomberg showed that Fed Funds futures had priced in a 90% chance of three more cuts in 2024.⁷ By the end of October, futures priced in a 75% chance for only two rate cuts. This showed that some investors expected the FOMC to cut rates at a slower pace than initially anticipated. This view contributed to bonds being sold which caused the increase in rates during October.

Earnings season got underway during October with many investors looking for insights directly from the companies’ announcements. Through the end of October, 324 companies from the S&P 500 had reported earnings. 87% of those companies met or beat consensus estimates for adjusted earnings-per-share. From a sector perspective, the Consumer Staples and Financials sectors had the highest percentage of their companies meet or beat estimates and were at 95% and 94%, respectively. Utilities underperformed the most with only 41% meeting or beating estimates.

The September results of Consumer Price Index (CPI) were released on October 10th and showed a slight rise in inflation.⁸ Both the year-over-year and month-over-month readings were reported above expectations. Year-over-year inflation was reported at 2.4%, above the 2.3% expectation but below the prior reading of 2.5%. Core CPI, which excludes the costs of Food and Energy, rose to 3.3%, higher than the prior reading of 3.2%. There was a rise in the cost of Core Services, which continued to be the largest contributor to the year-over-year reading. An increase was also seen in the cost of Food. The cost of Core Goods and the cost of Energy continued to fall.

Month-over-month CPI was in line with the prior month’s reading of 0.2%. However, the reading was higher than the 0.1% consensus estimate that analysts were anticipating. The reading saw a rise in the cost of Core Services and the cost of Food. The month-over-month cost of Core Goods flipped from falling in the previous reading to rising. The cost of Energy fell month-over-month. Month-over-month Core CPI reading rose at a rate of 0.3%, more than the estimate of 0.2% but in line with the previous reading.

QQQ Performance

From a sector perspective, Telecommunications, Energy and Industrials were the best performing sectors in QQQ and returned 5.53%, 2.70% and 1.57%, respectively. During the month, these three sectors had average weights of 4.44%, 0.55% and 4.39%, respectively. The bottom performing sectors in QQQ were Consumer Staples, Real Estate and Health Care which had average weights of 3.32%, 0.20% and 5.93%, respectively. Consumer Staples returned -4.15%, Real Estate returned -3.51% while Health Care returned -3.25%.

Standardized performance - Performance quoted is past performance and cannot guarantee of comparable future results; current performance may be higher or lower. Visit invesco.com/performance for the most recent month-end performance. Investment returns and principal value will vary; you may have a gain or loss when you sell shares. Fund performance reflects fee waivers, absent which, performance data quoted would have been lower. Invesco QQQ’s total expense ratio is 0.20%. Index performance does not represent fund performance. Please keep in mind that high, double-digit and/or triple-digit returns are highly unusual and cannot be sustained.

QQQ’s outperformance vs. the S&P 500 was driven by its differentiated holdings in the Consumer Discretionary sector. The Health Care sector was the second largest contributor to outperformance driven by its underweight allocation and differentiated holdings. The ETF’s overweight exposure and differentiated holdings to the Telecommunications sector also contributed to relative performance.

Differentiated holdings in the Technology sector was the largest detractor from relative performance vs. the S&P 500. This was followed by the lack of exposure to the Financials sector and underweight exposure in the Energy sector.

QQQ’s overweight exposure to Nvidia, T-Mobile and Netflix were the largest contributors to relative performance vs. the S&P 500. Nvidia, T-Mobile and Netflix had average weights during the month of 8.30%, 1.65% and 2.04%, and returned 9.32%, 8.14% and 6.59%, respectively. Overweight exposure to Advanced Micro Devices, Regeneron Pharmaceuticals and ASML Holding detracted the most from relative performance vs. the S&P 500 for the month and had average weights of 1.70%, 0.70% and 0.47%, respectively. Advanced Micro Devices, Regeneron Pharmaceuticals and ASML Holding returned -12.20%, -20.27% and -19.10%, respectively.

Earnings season started in October with several QQQ heavyweights reporting. Netflix was amongst the first companies to report Q3 financial results and beat revenue and adjusted earnings-per-share (EPS) expectations.⁹ Revenue was reported at $9.82 billion vs. the estimate of $9.78 billion while adjusted EPS came in at $5.40 vs. the estimate of $5.12. Driving the higher-than-expected revenue was a 5.07 million increase in net subscribers. Half of the new subscribers opted for the subscription supported by ads. The streaming service’s stock price rose over 11% on October 18th, the day following the announcement.

Tesla reported results on the 23rd which led to a nearly 22% rally in the company’s stock on the 24th. After several quarters of disappointing results, many investors welcomed the results with EPS announced at $0.72 vs. the $0.60 expectation. However, revenue did miss the estimate of $25.43 billion, coming in at $25.18 billion. Despite the revenue miss, there was improvement to Tesla’s gross margin, 19.80% which was three points higher than estimates, contributed to the strong positive response seen in the company’s stock. The Model 3 and Y continued to be the majority of sales with hopes of increased production of the Cybertruck in the future. Tesla also continued to signal the potential for new, more affordable models releasing in 2025.

Alphabet, Google’s parent company announced earnings on October 29th and saw adjusted EPS and revenue come in above consensus expectations. Revenue was announced at $88.27 billion vs. the estimate of $86.45 billion while adjusted EPS came in at $3.12 vs. the estimate of $1.84. Advertising revenue continued to account for most of the revenue and was reported at $65.85 billion. This equated to 10% year-over-year growth. Google Cloud was a higher area of revenue growth with a year-over-year rate of 35%. Alphabet’s stock finished around $169 per share on the 29th and rose as high as $183 per share in pre-market trading on the 30th.

Both Meta Platforms and Microsoft reported on October 30th after the market closed and both saw their stock drop after their announcements. Despite Meta and Microsoft both beating revenue and adjusted EPS estimates, concerns were raised about rising expenditures and slowing growth expectations. Microsoft saw revenue of $16 billion vs. the estimate of $14.47 and adjusted EPS of $3.30 vs. the $3.11 estimate. Data center capacity that was expected to become available did not occur during the quarter and is expected to slow Azure Cloud growth in the next quarter. Microsoft’s stock fell 6% on October 31st, the day following the earnings. Meta announced $6.03 adjusted EPS and revenue of $40.59 billion, both beating the estimates of $5.25 EPS and $40.25 billion in revenue. Meta is expecting an acceleration in capital expenditures next year which caused its stock to fall over 4% on the 31st.

Trading Stats

For the month of October, shares traded of QQQ fell by 17.92% month-over-month along with notional value traded falling by 14.70% month-over-month. The month saw an average of 28.71 million shares trade each day (vs. 34.97 million last month) for a value of $14.08 billion (vs. $16.51 billion last month). That compares to averages of 66.03 million shares and $6.35 billion over the life of the fund, and 39.67 million shares and $17.43 billion for the past 12 months.