QQQ Surpasses All-Time Highs as Markets Leap

Time will tell if the current run is a bubble or can be sustained.

The $227 billion Invesco QQQ Trust (QQQ) has regained its star status.

A 53% gain this year (and counting) has seemingly erased investors’ memory of last year’s loss of nearly one-third of its value. Other than a loss of a mere 0.12% in 2018, QQQ has been down for only five of its 24 full years of life. However, each of those annual losses was between 32% and 37%, including three straight years (2000, 2001, 2002). 

That’s a very tight grouping, and it implies that while QQQ and Nasdaq investing in general have been wildly profitable over the long term (20.2% annualized over the past 15 years), it is not without risk. And with QQQ approaching its all-time high from Nov. 26, 2021, this seems like the right time to identify some possible scenarios from here into the new year. 

QQQ’s Peak 

Just over two years ago, QQQ’s price settled at just under $409 a share. But things got messy from there. QQQ ultimately bottomed out at $252 during 2022’s final quarter before this year’s big comeback. Next up: QQQ goes for a new all-time high, as it was trading at $408 as of late Monday.  

The Federal Reserve is assumed to have pivoted toward lowering rates next year, or at least not raising them. Bears will argue that might imply Fed Chairman Jerome Powell and gang know something (bad) that leaves them open to cutting rates sharply to offset some sort of financial calamity.

The QQQ, however, shows strong technical price movement and is driven by a set of stocks that increasingly are looked at as invincible. 

We’ll find out in time if 2024 is more like 2022 or the dot-com bubble era, which together accounted for four of the five steep declines in QQQ, or more like this past year or many other high-performance years for the Nasdaq. 

For those who are looking to ride the QQQ wave but prefer to look outside of the fund given its top-heavy nature, many ETFs are “infused” with some of that FAANG stock exposure but are driven more by other tech and innovation leaders. 

QQQ-Like ETFs 

The First Trust Dow Jones Internet Index Fund (FDN) is a $6.2 billion ETF that looks a lot like QQQ in some places but looks very different in others. Not all the FAANG stocks meet the definition of “internet commerce or internet services” that FDN demands. And FDN owns only 43 stocks, compared with the 100 in QQQ. 

Another fund from the same issuer, the First Trust Cloud Computing ETF  (SKYY), targets a sub-sector of technology and owns three of the so-called Magnificent Seven stocks. This $2.9 billion ETF is up 50% in 2023. At 33 times trailing earnings, SKYY is about 10% more expensive than QQQ, and so investors are counting on SKYY’s portfolio to grow faster than QQQ's, which is dominated by very mature businesses. 

The current market has a very 1999/2000 feel to it, given the partying happening among QQQ investors. Heck, that ETF even has its own television commercial! 

But in investing, “feel” is not an investment approach that many can pull off. With QQQ approaching its formula $409 moment, investment advisors and self-directed investors alike will need to pay careful attention and be ready to respond to what could be a big move in 2024. 

In what direction and for how long? Only the market knows.