The tech-heavy Nasdaq Composite Index topped the 20,000 milestone for the first time, powered by a sustained rally in technology stocks. Artificial intelligence (AI) optimism and expectations of a favorable regulatory environment drove the tech-heavy index to new heights. The milestone occurred just a few weeks after the index crossed 19,000 in early November.
The Nasdaq Composite Index is up more than 33% this year, outperforming other major indices. As such, the ETFs tracking the index have 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.
Tech Surge
The technology has been at the forefront of the latest rally with the return of the "Magnificent Seven" stocks. AI darling NVIDIA (NVDA) became the world’s largest company, with its market cap reaching $3.3 trillion, while Tesla (TSLA) has been on a powerful rally. After reclaiming the trillion-dollar market cap last month, Tesla touched a new all-time high. Google parent Alphabet (GOOGL), Apple (AAPL), Meta (META) and Amazon (AMZN) all soared to a record high (read: Tesla's Comeback Fuels ETF Opportunities for 2025).
AI Craze
The AI boom is fueling the rally in the stocks, with companies investing considerable sums in the technology. The expansion of AI applications holds the promise of ushering in fresh growth opportunities in the tech sector and beyond. The generative AI market is poised to explode at a CAGR of 42% to $1.3 trillion over the next 10 years from a market size of just $40 billion in 2022, according to a new report by Bloomberg Intelligence (BI).
Favorable Policy
Optimism over Trump's policies on tax cuts and looser regulations under Donald Trump’s second presidency will likely benefit big tech firms.
Low Rates
The prospect of a lower interest rate bodes well for stocks. Lower interest rates generally lead to reduced borrowing costs that help businesses expand their operations more easily and increase profitability. This, in turn, stimulates economic growth and provides a boost to the stock market. The latest inflation data shows that US consumer prices rose at the fastest pace in seven months during November, bolstering bets that the Federal Reserve will cut interest rates later this month. According to CME Group's FedWatch Tool, traders predict a 94% chance of a 25-bps cut at the Dec. 17-18 meeting.
The Fed slashed interest rates two times over the past two months, bringing down the benchmark rate to 4.5%-4.75%.
ETFs in Focus
Invesco QQQ (QQQ)
Invesco QQQ provides exposure to 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 an AUM of $323.2 billion and an average daily volume of 24 million shares. Invesco QQQ charges investors 20 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: The Most Popular ETFs of 2024).
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 101 securities in its basket, with a higher concentration on the top firm. Invesco NASDAQ 100 ETF has accumulated $38.6 billion in its asset base and trades in an average daily volume of 1.4 million shares. It has a Zacks ETF Rank #2.
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
Holding 101 stocks, First Trust NASDAQ-100 Equal Weighted Index Fund provides equal exposure to stocks on the Nasdaq-100 Equal Weighted Index. It has amassed $2 billion in its asset base while trading in moderate volumes of 50,000 shares a day, on average. First Trust NASDAQ-100 Equal Weighted Index Fund charges 57 bps in annual fees and carries a Zacks ETF Rank #2 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 103 securities. Invesco NASDAQ Next Gen 100 ETF charges 15 bps in annual fees and sees a good trading volume of nearly 77,000 shares a day. With an AUM of $698.3 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 TR Index. It has amassed $1.3 billion and trades in an average daily volume of 245,000 shares. Direxion NASDAQ-100 Equal Weighted Index Shares charges 35 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.
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