To The Moon

The Nasdaq Composite Index reached a new all-time high on Wednesday, surpassing 17,000 points for the first time. Robust corporate earnings and bets on interest rate cuts fueled the rise in stock prices. Particularly, Nvidia's impressive earnings last week brought significant optimism to the stock market, boosting confidence in the global artificial intelligence (AI) boom. This has supported the Nasdaq's upward trend. So far this year, the tech-heavy index has risen by 13.4%.

As a result, ETFs tracking the index have garnered significant attention. These include Invesco QQQ (QQQ), Invesco NASDAQ 100 ETF (QQQM), and First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW).

Will the rally continue?

The expansion of AI applications is expected to bring new growth opportunities to the tech sector and beyond. According to a new report from Grand View Research, the global AI market is projected to grow at a compound annual growth rate of 36.6% (2024-2030), reaching $811.75 billion by 2030.

A recent survey by Bank of America indicates that expectations of interest rate cuts, rather than earnings optimism, have driven investor confidence to its highest level since November 2021. About 82% of global fund managers expect the Federal Reserve to make its first rate cut in the second half of the year, and 78% of fund managers believe an economic recession is unlikely within the next 12 months.

However, concerns about stubborn inflation could again hinder the index's rise. This is because the Federal Reserve meeting minutes and optimistic manufacturing data have delayed the timing of rate cuts, both highlighting concerns about persistent inflation. Notably, U.S. Treasury yields had their best week in a month, indicating that rates might need to stay higher for longer than expected.

Although inflation has eased over the past year, recent Federal Reserve meeting minutes show that inflation has not further moved toward the Fed's 2% target in recent months. Therefore, the process of deflation may take longer than previously anticipated. Meanwhile, U.S. business activity growth, after two months of slowdown (driven by a recovery in the services sector), accelerated sharply in May to the fastest pace in over two years. The data indicates that the U.S. economy is back on track, with GDP in the second quarter expected to grow robustly again. A strong economy could trigger a resurgence in inflation.

ETF Focus

Invesco QQQ (QQQ)

Invesco QQQ provides investment opportunities in the 101 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq-100 Index. It is one of the largest and most popular ETFs in the large-cap space, with $269.8 billion in assets under management and an average daily trading volume of 38 million shares. Invesco QQQ charges investors an annual fee of 20 basis points.

Invesco NASDAQ 100 ETF (QQQM)

The Invesco NASDAQ 100 ETF, similar to QQQ, tracks the NASDAQ-100 Index but has a lower annual fee of 15 basis points. It holds 103 securities in its basket, with a higher concentration on top companies. The Invesco NASDAQ 100 ETF has accumulated an asset base of $25 billion, with an average daily trading volume of 1.5 million shares.

First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)

The First Trust NASDAQ-100 Equal Weighted Index Fund holds 101 stocks, providing equal exposure to the stocks in the NASDAQ-100 Equal Weighted Index. The fund has amassed an asset base of $2.1 billion, with an average daily trading volume of 87,000 shares. The First Trust NASDAQ-100 Equal Weighted Index Fund charges an annual fee of 57 basis points.