
Innovation R&D: A long-term investment
See why long term investment strategies should factor in research and development. A company's R&D strategy may lead to durability and better returns.
The all-time high of the S&P 500® Index, set on February 19th at a price of 6144, proved to be the peak as many investors sold equities and purchased bonds during March. High uncertainty around tariffs and the future Federal Open Market Committee (FOMC) meeting caused some investors to position more cautiously.2
The VIX Index, a commonly used gauge for volatility and investor fear, closed February at 19.63, approximately four points higher than the February low.3 Volatility continued to rise, reaching a high closing price of 27.86 on March 10th. On an intraday basis, the VIX reached as high as 29.57. Volatility proceeded to decline into the last week of March, bottoming on the 15th at 17.15. The VIX finished the month at 22.28 as tariff announcements on April 2nd were drawing near.
News around tariffs dominated headlines in March and was one of the primary sources of market movement for the month. 25% tariffs were supposed to go into effect on March 4th on Canada and Mexico but were postponed for a month after President Trump spoke with automakers Ford, General Motors, and Stellantis. However, tariffs against imports from China were increased to 20%. In response, the three countries promised retaliatory tariffs on a wide variety of goods. Trump threatened a 200% tariff on spirits and wine from Europe if they decided to go forward with the 50% tariff on whiskey from the U.S. Lastly, on March 26th, Trump announced 25% tariffs on incoming autos and auto parts to try to encourage more manufacturing in the U.S. Tariffs on autos were scheduled to start on April 3rd and May 3rd on parts. Despite the extensive news coverage on tariffs, many investors remained focused on April 2nd, dubbed “Liberation Day” by Trump, when broader tariffs were expected to be announced.
The Federal Open Market Committee (FOMC) met for the second time of the year, and the meeting brought a wave of changes in economic projections from the Federal Reserve (Fed). The central bank cut its 2025 Gross Domestic Product (GDP) forecast by 0.4%, to 1.7% growth versus the previous forecast of 2.1% in December.4 Additionally, the forecast for inflation was raised by 0.3%, from a previous forecast of 2.5% up to 2.8% for 2025. In the statement, the FOMC noted that “uncertainty around the economic outlook has increased.” In his press conference, Fed Chairman Jerome Powell expanded on this notion by stating that inflation has started to move higher, with at least partial responsibility being caused by tariffs. They have the potential to delay further progress against price increases as the year goes on. Despite the concerns about the upward pressure that tariffs can cause on prices, the Fed’s dot plot shows that FOMC participants still expect two rate cuts this year.
Two cuts would bring the target rate down to 3.75% - 4.00%. The Fed also mentioned that it will slow its quantitative tightening program aimed at decreasing the amount of bonds that the central bank holds on its balance sheet.5 It will allow $5 billion of Treasurys to roll off each month, down from $25 billion.
In mid-March, the market received positive reports on the inflation front. The Consumer Price Index (CPI) reading dipped back below the 3.0% threshold, coming in at 2.8%.6 The year-over-year Core CPI reading (which strips out the more volatile food and energy components) was reported at 3.1%. That reading represents the slowest year-over-year growth since April 2021, which saw 3.0% growth on a year-over-year basis.
The Producer Price Index (PPI) year-over-year growth also slowed, with the headline number at 3.2% and the core reading at 3.4%.7 Both readings showed slower price expansion compared to the previous two months' releases and were better than the median economist forecasts. The largest surprises in the PPI report came from the month-over-month figures for both the headline and core readings.8 The headline PPI showed 0.0% growth for February, better than the January revised month-over-month growth of 0.6% and besting economists’ expectations for a 0.3% print. The core PPI was an even greater surprise at -0.1%, the first contraction in the month-over-month reading since July 2024. The February contraction was much lower than the revised January 0.5% print and the median economist estimate for 0.3% growth.9
Despite yields ranging between 4.10% and 4.40%, the 10-year US Treasury finished the month flat for March. It closed at 4.21%, the same level as the end of February. However, movement was seen in shorter and longer duration Treasuries. The 3-year Treasury’s yields finished March at 3.88%, down from 3.99% at the end of February. The 30-year yield rose in March and finished at 4.57%, up from 4.49%.
From a sector perspective, seven of the ten sectors that QQQ has exposure to finished in negative territory for March. Consumer Discretionary was the worst performing, declining by 9.19% for the month. Relative QQQ underperformance versus the S&P 500 was driven by its overweight exposure to the Technology sector and underperformance within the Health Care sector. The Technology sector averaged a 58.01% weighting for the month and declined by 9.07%, compared to the sector’s average weight of 35.26% in the S&P 500 and a total return of -9.33%. Within QQQ, the Health Care sector averaged a 5.76% weighting for the month and saw a total return of -5.39%, compared to the sector’s average weight of 10.56% in the S&P 500 and a total return of -1.92%.
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.
Real Estate and Consumer Staples were the best performing sectors in QQQ, up 3.91% and 1.68%, respectively. Basic Materials was the only other sector to finish in positive territory, up 0.42% for the month. Real Estate averaged a 0.22% weight in QQQ for March, while Consumer Staples averaged a 3.15% weighting.
During the last week of the month, semiconductors came under considerable pressure. From March 25 to March 31, the industry group (according to ICB) was lower by 9.18%, underperforming both the technology sector (-6.92%) and QQQ (-4.96%). Worries stemmed from reports that Microsoft had canceled or deferred leases for data center projects in Europe and the US. Concerns around the growth of data center buildout swirled, questioning whether the large investments that have been announced represent a potential oversupply versus AI demand. Microsoft reaffirmed its previous forecast of $80 billion in data center spending is on track for its fiscal year and referenced that the company is on track to meet consumer demand after it added more capacity last year than any other year in its history. The company added, “While we may strategically pace or adjust our infrastructure in some areas, we will continue to grow strongly in all regions. This allows us to invest and allocate resources to growth areas for our future.” It was reported that Alphabet and Meta picked up some of the leases that Microsoft canceled. Notable decliners for the period included Marvell Technology (-14.09%), ARM Holdings (-14.07%), Advanced Micro Devices (-10.51%), NVIDIA (-10.20%), ON Semiconductors (-10.20%), and NXP Semiconductors (-10.06%), all lower by over 10%.
Specifically, Broadcom fell by 11.06% from the 25th through the 31st and concluded a tough performance month for the company. For March, Broadcom was the largest detractor from relative performance versus the S&P 500 index as it represents the second-largest overweight of any company. Shares declined by 15.97%, and the company had an average weight of 3.97% in QQQ versus 1.82% in the S&P 500 for March. Earlier in the month, Broadcom had its best trading day after the company released earnings and revenue that exceeded analysts’ estimates. On March 7, shares surged by 8.64% after the company reported comparable earnings per share of $1.60 versus analyst forecasts of $1.50 and revenue of ~$14.92 billion versus estimates of $14.62 billion.10 Beyond beating expectations, the numbers showed solid growth with earnings growing ~46% year-over-year and revenue growing ~25% on a year-over-year basis. For the current quarter, the company provided revenue guidance of $14.9 billion, better than analyst estimates of $14.6 billion, and CEO Hock Tan noted that $4.4 billion of that will come from AI sales. The company referenced potential growth among hyperscaler customers as it has a relationship with three and is “deeply engaged” with an additional four.
Only 27 companies of the 100 included in QQQ had positive performance for the month of March. MicroStrategy, the bitcoin treasury company, was the best performing stock in QQQ after it advanced by 12.86% for the month. To achieve that return, it was a volatile ride: of the 21 trading days in the month of March, MicroStrategy shares closed by 5% or more (in either direction) in 9 of them, or over 42% of the time. On a relative basis, T-Mobile was the biggest positive contributor to QQQ’s relative performance versus the S&P 500. The wireless network operator’s stock was down by 1.10% for the quarter and averaged a 2.03% weighting for the month in QQQ versus a 0.26% weight in the S&P 500. Advanced Micro Devices was another positive contributor to relative performance versus the S&P 500 for the month. The semiconductor stock advanced by 2.28% while averaging a 1.12% weight in QQQ versus a 0.35% weight in the S&P 500 Index. Advanced Micro Devices was the only stock within the semiconductor industry (according to ICB) to finish in positive territory. During the month, there seemed to be optimism around the company’s previously announced acquisition of ZT Systems to strengthen their capabilities in data centers. The deal cleared an important EU hurdle during the month and, at the time of writing (4/2), the deal has been completed.
For the month of March, shares traded of QQQ rose by 51.87% month-over-month along with notional value traded rising by 40.22% month-over-month. The month saw an average of 46.78 million shares traded each day (vs. 30.80 million last month) for a value of $22.54 billion (vs. $16.08 billion last month). That compares to averages of 65.53 million shares and $6.52 billion over the life of the fund, and 35.27 million shares and $16.91 billion for the past 12 months.
Notional value is a term used to value the underlying asset—total value of a position, how much value a position controls, or an agreed-upon amount in a contract—in a derivatives trade.
The Federal Open Market Committee (FOMC) is a 12-member committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.
The CBOE Volatility Index, or VIX, is a real-time market index representing the market's expectations for volatility over the coming 30 days.
Gross domestic product (GDP) is a monetary measure of the total value of goods and services produced within a country during a specific time period.
The Quantitative tightening (QT) is a monetary policy tool applied by central banks to decrease the amount of liquidity or money supply in the economy.
The Consumer Price Index (CPI) measures the average change in prices over time that consumers pay for goods and services.
The Producer Price Index measures the average change over time in selling prices received by domestic producers of goods and services.
The headline Producer Price Index measures changes in prices received by domestic producers for goods, services, and construction sold for personal consumption, while the Core Producer Price Index measures the change in the selling price of goods and services sold by producers, excluding food and energy.
The January Print refers to the January Effect, a market anomaly where stock prices tend to increase in January, sometimes referred to as a "price anomaly."
Earnings per share is the monetary value of earnings per outstanding share of common stock for a company.
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See why long term investment strategies should factor in research and development. A company's R&D strategy may lead to durability and better returns.
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All data sourced from Bloomberg L.P. as of 3/31/2025 unless otherwise noted. An investor cannot invest directly in an index.
Past performance is not a guarantee of future results.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional/financial consultant before making any investment decisions.
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.
There are risks involved with investing in ETFs, including possible loss of money. ETFs are subject to risks similar to those of stocks. Investments focus in a particular sector, such as technology, are subject to greater risks and are more greatly impacted by market volatility, than more diversified investments.
Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.
Russell 1000 Growth® Index includes those Russell 1000® companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000 Value® Index includes those Russell 1000® companies with lower price-to-book ratios and lower expected growth values. An investment cannot be made directly into an index.
The Index and Fund use the Industry Classification Benchmark (“ICB”) classification system which is composed of 11 economic industries: basic materials, consumer discretionary, consumer staples, energy, financials, health care, industrials, real estate, technology, telecommunications and utilities.