Will Nasdaq ETFs Continue Their Rally Going Into Q2 Earnings?

The Nasdaq Composite Index has been soaring, making a series of new records in recent sessions, driven by strong corporate earnings, AI-driven optimism and expectations of policy support from the Federal Reserve. 

As such, the ETFs tracking the index have also gained momentum. These include Invesco QQQ QQQ, Invesco NASDAQ 100 ETF QQQM, First Trust NASDAQ-100 Equal Weighted Index Fund QQEW, Invesco NASDAQ Next Gen 100 ETF QQQJ and Direxion NASDAQ-100 Equal Weighted Index Shares QQQE.

Strong Start to Q2 Earnings Season

The second-quarter earnings season got off to a strong start, with companies not only beating estimates but also providing a favorable outlook for current business trends, which should help solidify earnings expectations for the third quarter and beyond. The S&P 500 earnings from 62 companies reported so far are up 9.3% from the same period last year on 5.8% higher revenues, with 82.3% beating EPS estimates and an equal proportion beating revenue estimates, per Earnings Trend report.

Among the Mag 7, Tesla TSLA and Alphabet GOOGL will report results today. Total Q2 earnings are expected to be up 11.7% on 11.3% higher revenues (read: 5 Sector ETFs Set to Power Q2 Earnings Growth).

According to FactSet, more than 60 S&P 500 companies have reported so far, with roughly 85% beating analyst expectations.

AI Boom Powers Growth Bets

The generative AI wave continues to be Nasdaq’s growth engine. Demand for data centers, GPUs, AI-focused software, and automation tools is driving investor enthusiasm across the board. Companies like Advanced Micro Devices (AMD), Broadcom (AVGO) and Palantir (PLTR) are seeing a surge in interest as investors look for exposure to the next phase of the AI revolution.

Rate Cut Hopes Add Fuel

With inflation data remaining relatively benign and economic growth stabilizing, markets are increasingly pricing in at least one rate cut by the Fed later this year. Lower interest rates benefit high-growth tech stocks, which are more sensitive to borrowing costs. Fed Chair Jerome Powell is expected to speak later this week, and any dovish signals could further support the rally.

Global Appetite for U.S. Tech

International investors are returning to U.S. tech in a big way. With geopolitical tensions and economic uncertainty in China and Europe, Wall Street, particularly large-cap U.S. tech, is seen as a relative safe haven. This global rotation is boosting capital inflows into Nasdaq-tracking ETFs like QQQ and QQQM.

ETFs in Focus

Invesco QQQ (QQQ) 

Invesco QQQ provides exposure to the 100 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 an AUM of $357.1 billion and an average daily volume of 44 million shares. Invesco QQQ charges investors 20 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Signs of Fatigue in Wall Street Rally? ETF Strategies to Follow). 

Invesco NASDAQ 100 ETF (QQQM)

Invesco NASDAQ 100 ETF is identical to QQQ, tracking the NASDAQ-100 Index, but comes with lower annual fees of 15 bps. It holds 104 securities in its basket, with a higher concentration on the top three firms. Invesco NASDAQ 100 ETF has accumulated $55.1 billion in its asset base and trades in an average daily volume of 3 million shares. It has a Zacks ETF Rank #1.

First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) 
 
Holding 100 stocks, First Trust NASDAQ-100 Equal Weighted Index Fund provides equal exposure to stocks on the Nasdaq-100 Equal Weighted Index. It has amassed $1.9 billion in its asset base while trading in moderate volumes of 49,000 shares a day, on average. First Trust NASDAQ-100 Equal Weighted Index Fund charges 55 bps in annual fees and carries a Zacks ETF Rank #3 with a Medium risk outlook.

Invesco NASDAQ Next Gen 100 ETF (QQQJ)

Invesco NASDAQ Next Gen 100 ETF follows the NASDAQ Next Generation 100 Index, which comprises securities of the next generation of Nasdaq-listed non-financial companies, i.e., the largest 100 Nasdaq-listed companies outside of the NASDAQ-100 Index. In total, the product holds 111 securities. Invesco NASDAQ Next Gen 100 ETF charges 15 bps in annual fees and sees a good trading volume of nearly 80,000 shares a day. With an AUM of $629.1 million, QQQJ has a Zacks ETF Rank #3.

Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE)

Direxion NASDAQ-100 Equal Weighted Index Shares provides an equal-weight exposure to the NASDAQ-100 Index by tracking the NASDAQ-100 Equal Weighted Index. It has amassed $1.2 billion and trades in an average daily volume of 94,000 shares. Direxion NASDAQ-100 Equal Weighted Index Shares charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

Bottom Line

With major earnings from tech titans on deck, Nasdaq’s momentum will likely be tested, but for now, the bulls are firmly in control.
 

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This article originally published on Zacks Investment Research (zacks.com).

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