QQQ Surge Brings Flood of Dot-Com Bust Memories

When Prince sang “1999,” he looked ahead to a year that’s important for today’s investors and investment advisors: “two thousand zero zero.” 

In the early part of that year, the Invesco QQQ Trust (QQQ) ETF was in a class of its own versus mere mortal equity ETFs.  

Fast-forward to 2024, and QQQ is at it again. And as 2000 shows us, being in a class of its own cuts both ways—and faster than many may think. This back and forth may end up the story arc of 2024. 

In 2000, QQQ rallied by about 3% during the first nine weeks of the year, through early March. Now, I don’t mean 3% over the course of nine weeks. I mean a 3% average return per week over that time! QQQ was up 26% year to date by March 9, 2000.  

Meanwhile, the SPDR S&P 500 Trust (SPY) was down during that time, as was the SPDR Dow Jones Industrial Average ETF Trust (DIA). Most of the S&P 500 sectors were down. The market was so narrow, even the Technology Select Sector SPDR Fund (XLK) greatly underperformed the surging QQQ. And that followed 1999, when QQQ rallied more than 70%. 

That is when the term “bubble” first began getting major usage on Wall Street. Because that bubble burst. Some of the biggest stock winners of 1999-2000 didn’t regain their peak prices until nearly two decades later. As for QQQ itself, it didn’t stop falling until it was 83% below that March 2000 top. 

QQQ Exuberance Cuts Both Ways 

That’s all part of ancient Wall Street history, and today’s investors might not even be familiar with it. That’s why it helps to revisit it at times like this. Because while the biggest holdings in today’s QQQ are dominant in their fields, financial fit and beloved by investors, market history has often been cruel following extreme situations of this type.  

Still, if market analysts such as Ed Yardeni are accurate, there’s potential for a meltup from these already-lofty levels. Markets have way of running hotter and colder than we ever think they can. Investors may recall that while the year 2008 was quite awful (SPY down 37%), some of the worst portfolio damage occurred during the first two months of 2009, after many could have been forgiven for thinking the worst was over.  

QQQ has put investors through a lot in recent years. A drop of 33% in 2022 was succeeded by a 55% rally last year, and a breakthrough to new all-time highs during this first month of 2024. And the “Magnificent Seven” stocks, this generation’s version of dot-com heroes of 1999-2000, now comprise an astounding 43% of QQQ.  

Risk Management: Now More Than Ever 

This is not a discussion about what will happen next. Rather, it is a reminder that risk management is perhaps the number one responsibility of investment advisors toward clients, or for self-directed investors to their families.  

Reward and risk happen fast in modern markets. And there are enough reminders of the 2000 pop and drop to provide plenty of investment strategy opportunities for the remainder of 2024.