Tech Charges QQQ as Nasdaq Enters Bull Market

The tech-heavy Invesco QQQ Trust (QQQ) is on a tear with the underlying Nasdaq index moving into bull territory, as investors bet on a pause in interest rate hikes that may be favorable to technology companies.   

QQQ rose nearly 1% in afternoon trading Thursday, extending its yearly gains and pushing the fund, and its underlying index, firmly into bull market territory.  

The ETF, which has gained 21% since its low at the end of December, and 18% year to date, is at its highest level since August, and well ahead of the SPDR S&P 500 ETF Trust (SPY)'s 5.8% increase so far this year.  

Technology stocks, which make up the majority of QQQ’s underlying index, have surged as investors bet the Fed will pause interest rate hikes. Some experts see the spate of bank failures, a weak housing market and fears of recession as reasons the Federal Reserve will end a cycle of rapid rate hikes.  

“The Nasdaq's rebound is a reflection of this year's shift back into growth stocks and away from value stocks,” said Sumit Roy, senior ETF analyst at etf.com.  

“The key driver seems to be a decline in long-term interest rates,” he added, noting the dip in the 10-year Treasury, which fell to 3.5% compared to the 4.25% when QQQ hit its low.  

The central bank raised rates 25 basis points on March 22, bringing the federal funds rate to sit between 4.75% and 5%, the highest level since 2007. In the last statement made by the Federal Open Market Committee, participants reaffirmed their commitment to cutting inflation from the current 6% to its 2% goal, while acknowledging the effect of tightening on markets. Still, it noted that rates may remain more elevated for longer than expected.   

“Movements in the rate will probably continue to influence the direction of QQQ in the short term, but at some point, earnings will start to become a factor again,” Roy noted.  

Despite the uptick in stock prices, many large tech companies have posted lackluster earnings in recent months. Tech behemoths like Meta Platforms Inc., Apple Inc., Amazon.com Inc. and Alphabet Inc. collectively missed earnings estimates by 8% in the fourth quarter, according to data from Bank of America.  

Contact Shubham Saharan at [email protected]