There was plenty of faltering through the first four months of 2025. But the Nasdaq-100 and S&P 500 indexes are in the green on a YTD basis. That indicates the era of large-caps and mega-caps dominance is far from over. It was merely interrupted — and briefly at that.
That’s good news for large-cap-heavy ETFs such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ). That is because both funds are heavily allocated to the biggest growth stocks. Geopolitical risk presents an obvious near-term headwind to risk assets. But some experts see favorable setups ahead for large-cap domestic stocks. Earnings growth is supporting that outlook.
“We remain more constructive on U.S. equities than the consensus mainly because key gauges we follow are pointing to a stronger earnings backdrop than others expect over the next 12 months,” noted Morgan Stanley CIO and Chief U.S. Equity Strategist Mike Wilson. “First, our main earnings model is showing high-single-digit Earnings Per Share growth over the next year.”
QQQ Could Be EPS Growth Winner
In any circumstance, the notion that earnings are rising is relevant. But that’s particularly true when evaluating QQQ and QQQM. That’s because those ETFs are viewed as proxies on the Magnificent Seven stocks. That group of equities has been and still are earnings growth drivers.
Potentially adding to the allure of QQQ and QQQM in the earnings growth conversation are improving earnings revisions. As Morgan Stanley’s Wilson points out, the bank’s earnings revision model labored at -25 two months ago. But it’s sharply improved to -9. That’s not a perfect reading, but it’s trending in the right direction. That indicates the trend could be a friend to QQQ and QQQM.
Of added relevance to investors considering the Invesco ETFs, which feature significant exposure to artificial AI stocks, is increasing corporate adoption of that technology. Wilson said that was a prominent conversation at Morgan Stanley’s recent financial services conference.
Another assist for QQQ/QQQM could arrive via the weakening U.S. dollar. That’s pertinent regarding these ETFs because large-cap tech is an export-sensitive sector.
“Finally, the most underappreciated tailwind for S&P 500 earnings remains the weaker dollar which is down 11 percent from the January highs. As a reminder, our currency strategists expect another 7 percent downside over the next 12 months,” concluded Wilson.
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