QQQ: Still Waiting For The 'Most Highly-Anticipated' Recession
Summary
- March's jobs report suggests that a soft landing is possible. That augurs well for the QQQ to sustain its recovery moving ahead.
- The doom and gloom prognosis of a deep recession that could hammer the Nasdaq is nowhere to be seen.
- While the Fed could still hike rates by another 25 bps, we are moving closer to the end of its record rate hikes.
- With the most highly anticipated recession not materializing, investors should consider adding confidently at its next dip.
- I do much more than just articles at Ultimate Growth Investing: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »
Kameleon007
Investors in the Invesco QQQ Trust ETF (NASDAQ:QQQ) have capitalized on the remarkable recovery in the technology sector (XLK) since the start of 2023, as it crossed over into a bull market.
We highlighted in an update in January that the QQQ is primed to "rise from its ashes" as market operators rotate from winning trades in value-based sectors to risk-on ones.
However, it's important to note that the S&P 500 (SPX) (SPY) already bottomed in October. We highlighted to members of our service on 21 October 2022 that "the bullish reversal condition" was validated, confirming the market's bottoming process.
Even though Tech and Consumer Discretionary (XLY) stocks went on another selling rampage toward the end of 2022, QQQ held its October lows. With that in mind, investors who dared to pick up those pieces from panic sellers as the market turned highly pessimistic are duly rewarded.
We also reminded investors in our February update to "buy confidently at the next dip." As such, the recent banking crisis in mid-March should have given investors the opportunity to add exposure. It might sound strange to some investors that market operators seemed to be ignoring the possibility of further contagion from the regional banks' fallout.
However, the market remains defiant, as it formed a bottom in mid-March, as the QQQ led the SPX, propelled by the outperformance in tech. We also informed our members on 13 March 2023 that "we could possibly bottom out here" (the week of the banking crisis... yes, the market bottomed out).
Hence, the QQQ's outperformance has not surprised us as the banking crisis gave dip buyers the excuse to buy more.
However, with the QQQ re-testing its February highs, as it closes in against its August 2022 levels, how should investors position their exposure if they missed the previous dip-buying opportunities?
March's jobs report was just released today (April 7). It showed we could still be on track for a soft landing, auguring well for the QQQ's medium-term recovery thesis.
Notably, the US economy added 236K jobs in March, below the consensus estimates of 240K. The employment rate fell to 3.5%. Hence, the rumblings of a "Goldilocks" report are resonating, which should put the Fed on pace to increase its Fed Funds rate or FFR by another 25 bps in early May.
However, without the specter of the economy falling into a deeper recession, we assessed that the market operators' prognosis of the ultimate bottom in October 2022 is correct.
Also, the QQQ's recovery from its March dip, as it outperformed the SPX, is on point, as these risk-on sectors will likely help to drive growth further.
Investors who still think the QQQ's outperformance was primarily driven by short-covering are missing the point. The underlying breadth data in the QQQ indicates that the advance has been broad-based, with the XLK and the QQQ among the top three index/sector ETFs with the most stocks above their respective 200-day moving averages.
As such, the rotation from valued-based sectors is evident, with the recent jobs report helping to position QQQ to sustain the recovery of its upward bias.
Despite that, we see the potential for a short-term top, as late buyers rushed in after missing the dips previously.
However, investors waiting for the next opportunity to add more exposure to the QQQ should confidently ignore the "ghosts" of last year's bear market, as the QQQ remains well-primed for outperformance moving forward.
Rating: Hold (On Watch).
Important note: Investors are reminded to do their own due diligence and not rely on the information provided as financial advice. The rating is also not intended to time a specific entry/exit at the point of writing unless otherwise specified.
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