Invesco QQQ monthly review

Overview

• For the month of May, QQQ’s NAV returned 6.37% outperforming the S&P 500® Index which returned 4.96%. The Russell 1000 Growth® Index underperformed QQQ which returned 5.99% along with Russell 1000 Value® Index which returned 3.17%.
• QQQ’s outperformance vs. the S&P 500 was driven by its overweight exposure in the Technology sector. The ETF’s underweight exposure and differentiated holdings in the Health Care sector also contributed to relative performance.
• QQQ saw inflow of $2.94 billion.
• QQQ ended the month with $267.47 billion in AUM and remained the 5th largest ETF in the US (based on AUM).
• For the month of May, shares traded of QQQ fell by 31.50% month-over-month along with notional value traded falling by 29.28% month-over-month.¹

Market Recap

The major equity indices found short term support at the April lows and proceeded to move upward during the month of May. The S&P 500 and QQQ’s NAV managed to avoid further losses after the recent pullback and set new all-time highs before finishing the month slightly lower than these levels. Market moving events during the month were the May Federal Open Market Committee (FOMC) meeting, the most recent inflation readings and the ISM Services PMI data release.^2,3

The FOMC held their third meeting of the year, and as expected, left the target Fed Fund’s rate between 5.25% - 5.50%. With inflation not falling at as quick of a pace as last year, expectations for the first rate cut of this cycle had been pushed further back into the year. At the end of 2023, the first rate cut was expected to arrive at the March meeting. After the May 1st FOMC meeting, Bloomberg showed Fed Fund’s futures expected the first rate cut not to arrive until November.⁴ The Fed noted in its official statement that lack of continued progress in bringing inflation to its 2% target showed that rate cuts would not be appropriate in the near term.

As usual, much attention was given to the press conference with Fed Chairman Jerome Powell following the meeting. Powell stated that the inflation data that had been reported so far this year had not given them the greater confidence needed to start cutting rates. The Chairman addressed questions around the labor market as well and stated that the Fed was prepared to respond to “unexpected weakness” in the job market. Powell also commented on rising concerns around stagflation as market readings have shown slowing growth. He stated that he did not understand “Where that’s coming from,” and added, “I don’t see the ‘stag’ or the ‘-flation’.” Powell did state that it is unlikely that the next policy decision would be another rate hike. Ultimately, the statement and comments from the press conference were interpreted as hawkish, with the S&P 500 finishing the day -0.34%.

On May 15^th, the Consumer Price Index (CPI) reading was released and provided a boost to equities.⁵ Year-over-year Inflation came in at 3.4%, in line with estimates and below the 3.6% reading of the previous month. Core CPI, which excludes the costs of Food an Energy, rose at a year-over-year rate of 3.6%. Looking at the components of headline CPI, a rise in the cost of Core Services continued to be the largest contributor to the year-over-year numbers with rises in the cost of Energy and the cost of Food also contributing. The cost of Core Goods fell which marked the fourth month in a row of declines.

Month-over-month CPI was announced below the street’s expectation of 0.4% and came in at 0.3%. The cost of Core Services was the largest contributor to the month-over-month reading, followed by an increase in the cost of Energy and slight rise in the cost of Food. The cost of Core Goods fell for the second reading in a row. The lower-than-expected reading was welcomed by equity investors as the S&P 500 rose 1.19% on the day, with QQQ’s NAV outperforming which returned 1.51%.

Personal Consumption Expenditures (PCE), which is the FOMC’s preferred measure of inflation, was released on the last day of trading of May.⁶ Year-over-year PCE was announced at 2.7%, in line with the 2.7% expectation and the previous month’s reading. A rise in the cost of Services continued to be the majority of the reading followed by the cost of Nondurable Goods. The cost to Nonprofits contributed minimally. The cost of Durable Goods continued to fall for the eleventh month in a row.

Month-over-month PCE was also in line with expectations and the previous month’s reading at 0.3%. The rise in the cost of Nondurable Goods saw the largest increase from the previous reading while the rise in the cost of Services continued to be the largest contributor. Cost of Durable Goods declined slightly from the previous reading and was the first negative reading since January. Month-over-month Core PCE was also in focus for investors with the exact reading announced at 0.249%. This allowed the number to be rounded down to 0.2% and made it appear much lower than the expectation of 0.3%. The PCE reports contributed to the volatility seen on May 31st as the S&P 500 saw a trading range over 1.6%.

ISM Services PMI, which is a sentiment gauge among purchasing managers, showed another monthly decline down to 49.4. Like similar indicators, a reading below 50 would indicate a slowdown or contraction in business activity. This was the first time ISM Services PMI reading below 50 since December of 2022. However, many investors took this as positive news, since the cost of Services has been a primary driver of inflation, hoping the slowdown may lead to costs falling.

QQQ Performance

From a sector perspective, Technology, Utilities and Health Care were the best performing sectors in QQQ and returned 8.56%, 8.17% and 7.81%, respectively. During the month, these three sectors had average weights of 59.57%, 1.32% and 6.28%, respectively. The bottom performing sectors in QQQ were Real Estate, Consumer Staples and Basic Materials with average weights of 0.26%, 3.84% and 1.77%, respectively. Real Estate returned -14.60%, Consumer Staples returned -2.51% while Basic Materials returned -1.49%.

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 overweight exposure in the Technology sector. The ETF’s underweight exposure and differentiated holdings in the Health Care sector also contributed to relative performance. Underweight exposure and differentiated holdings in the Industrials sector was the third contributor to relative performance vs. the S&P 500. The Basic Materials sector detracted the most to relative performance and was driven by its differentiated holdings. Differentiated holdings in the Real Estate sector, along with differentiated holdings the Consumer Staples sector, also detracted from relative performance to the S&P 500.

QQQ’s overweight exposure to Nvidia, Qualcomm and Apple were the largest contributors to relative performance vs. the S&P 500. Nvidia, Qualcomm and Apple had average weights during the month of 6.66%, 1.53% and 7.98%, and returned 26.89%, 23.54% and 13.02%, respectively. Overweight exposure to Intuit, Tesla and Adobe detracted the most from relative performance vs. the S&P 500 for the month and had average weights of 1.27%, 2.39% and 1.56% respectively. Intuit, Tesla and Adobe returned -7.86%, -2.84% and -3.90%, respectively.

Nvidia’s quarterly earnings announcement proved to be another market moving event as the artificial intelligence (AI) chipmaker’s results surprised to the upside. Revenue beat expectations coming in at $26.04 billion vs. the estimate of $24.69 billion, while adjusted earnings-per-share was $6.12 vs. the estimate of $5.65.⁷ The results equated to year-over-year revenue and earnings growth of 265% and 461%, respectively. Quarter-over-quarter growth was impressive as well with revenue growing 18% and earnings growing 19%. Data center revenue was $22.56 billion and grew nearly 23% quarter-over-quarter. Nvidia’s earnings release in the first quarter in 2023 was the catalyst that moved AI into the spotlight. The company has spent over $8 billion in research and development during previous twelve months to remain at the forefront of the new industry. Also notable from the earnings call, Nvidia announced a 10-for-1 stock split. This meant that for every one share of Nvidia’s stock a shareholder owned at the end of the day on June 6th, they owned ten shares after the split became effective after the close on June 7th. The per-share price was also divided by a factor of ten to account for the change in outstanding shares. The split-adjusted price became effective on Monday, June 10th. Nvidia’s stock rose 9.3% the day following the earnings call and rose another 5.6% by the end of the month. Market capitalization of Nvidia stood at $2.70 billion at the end of May, making it one of four companies in the world with a market capitalization over $2 billion.

Moderna’s stock posted its largest monthly gain since May of 2020. The pharmaceutical company’s share price made its first move up after a favorable earnings announcement at the beginning of the month. While the company was still operating at a loss in the most recent quarter, both revenue and adjusted earnings-per-share were announced above expectations. Revenue was reported at $167.00 million vs. the estimate of $99.57 million while adjusted earnings-per-share came in at -$3.07 vs. the estimate of -$3.58. Moderna saw higher revenue from COVID-19 vaccine sales while total operating expenses were lower than expected. The company’s stock rose over 12% the day after the earnings announcement.

Among other pharmaceutical companies, Moderna also jumped later in the month as the second case of the avian flu appeared in humans in the U.S. It was reported that there was potential for the US government to implement a federal government vaccine program. While it has been stated that chances of widespread human infection remain low, Moderna’s stock still rose nearly 14% on May 22^nd. The drugmaker also received approval for its new respiratory syncytial virus, or RSV, vaccine on May 31^st. This decision was initial supposed to arrive earlier in the month but was delayed.

Qualcomm performed well for the month of May as the company announced quarterly results that beat on both the top and bottom lines. Revenue was reported at $9.39 billion vs. the estimate of $9.32 billion while adjusted earnings-per-share came in at $2.44 vs. the estimate of $2.32. Also contributing to the strong financial results was an increase in next quarter’s revenue guidance which rose by 13%. The semiconductor and telecommunications equipment company noted a potential increase in demand for their AI enabled products.

Trading Stats

For the month of May, shares traded of QQQ fell by 31.50% month-over-month along with notional value traded falling by 29.28% month-over-month. The month saw an average of 33.21 million shares trade each day (vs. 48.48 million last month) for a value of $14.81 billion (vs. $20.94 billion last month). That compares to averages of 66.57 million shares and $6.18 billion over the life of the fund, and 47.20 million shares and $18.85 billion for past 12 months.