Broadly speaking, large- and mega-cap tech stocks are far from bear market territory. But the Nasdaq-100 Index (NDX) closed 6% below its 52-week high last Friday.
These days, that could qualify as a pullback among stalwart growth stocks. It could also signal a buying opportunity with ETFs such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ). Both funds follow the aforementioned NDX.
Within the Invesco ETFs, marquee holdings such as Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Amazon (AMZN), and Tesla (TSLA), just to name a few, are off recent highs. Their pullbacks have been deeper of those experienced by QQQ and QQQM.
Big Tech May Be on Cusp of Resurgence
Those retrenchments are prompting some market observers to speculate big tech may be resurging.
Perhaps the biggest headwind that’s recently confounded the Invesco ETFs is soaring 10-year Treasury yields. Yields on the benchmark U.S. government closed at 4.78% last Friday, stirring concern that 5% is right around the corner. As was seen in 2022, rising interest rates harm growth stocks because it makes their future cash flows less appealing to investors.
“Enter the bull case. It starts with the fact that the rise in yields is likely to slow down from here,” reported Jacob Sonenshine for Barron’s. “They just can’t keep rising at the same pace, particularly because they’re already reflecting the Federal Reserve’s plan to keep rates higher for longer. A drop in yields, of course, would lift tech stocks—and the entire stock market, for that matter—but even just a slower increase would be helpful.”
Goldman Sachs analysis referenced in the Barron’s article indicates that if 10-year yields can hold steady over the near term, the “magnificent seven” cohort, which includes the aforementioned quintet along with Alphabet (GOOG) and Meta Platforms (META), could outperform the rest of the S&P 500. That’s relevant to investors considering QQQ and QQQM because the magnificent seven combine for approximately 43% of the ETFs’ rosters. Plus, those darling stocks are less expensive than they were just a few months ago.
“The stocks are also far cheaper than they were just a few months ago. The seven now trade at an aggregate 27 times earnings estimates for 2024, down from 34 times at this year’s peak. Yes, that’s more expensive than the S&P 500, but it’s not a commanding valuation, given the stocks’ expected profit growth,” according to Barron’s.
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