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Nasdaq ETFs Won in May: Further Rally Expected Ahead

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Proving the famous adage "Sell in May and Go Away" wrong, the Nasdaq recorded five consecutive weeks of gains and added approximately 6% over the past month, led by the AI-powered charge of mega-cap Tech.

The Nasdaq Composite has established a substantial lead over the Dow Jones Industrial Average this year, with a margin of outperformance reaching over 19%. This is the widest margin of outperformance seen since 1991, according to Dow Jones Market Data, as quoted on MarketWatch.

Based on the Dow Jones Market Data, this marks the first time since the Nasdaq's inception in 1971 that the index has recorded a year-to-date increase of more than 21% while the Dow has remained in negative territory for the year.

What’s Behind Nasdaq’s Gain

Chances of the Federal Reserve cutting interest rates or staying put, lower Treasury yields, U.S. recession fears, continued regional banking crisis in the United States and the AI mania are driving interest in mega-cap technology names, which appear to be safe bets.

Also, investors seeking security amid concerns ranging from the debt ceiling to a potential U.S. banking crisis have found solace in mega-cap stocks like Google parent company Alphabet, Microsoft Corp., and These stocks have garnered appeal due to their robust financial positions and reliable cash flows, making them enticing investment options in recent months.

Last year was troublesome for these stocks. Their valuation got corrected massively, which led to a rally this year on lower rates. Inflation is showing signs of easing finally and this acts as a tailwind for the tech-heavy Nasdaq. The Nasdaq is growth-oriented and performs better in a low-rate environment.

What Lies Ahead?

Concerns about the Federal Reserve's monetary policy tightening and the recent turmoil in the banking sector are likely to persist even if the debt deal is cracked. Overall, there is anticipation for a broader equity will rally. The excitement surrounding artificial intelligence and its association with mega-cap companies will provide further support to the tech stock category.

Plus, Silicon Valley layoffs have been intense. Amazon, Meta, Alphabet, Twitter, Salesforce – most of the tech giants have been on layoff spree. Such layoffs and cost reduction may boost profitability of the tech companies. This is another reason for the recent tech rally.

What Does Valuation Say?

Per Morningstar data, price/forward earnings of the Nasdaq stand at 20.00X, while the past decade’s historical data reveal that the highest P/E was 27.55X hit in 2021. This means the index is trading at a 27.4% discount to the decade high P/E, indicating further run from here.

ETFs in Focus

Against this backdrop, below we highlight a few Nasdaq ETFs so that interested investors can play the ongoing rally.

Invesco QQQ Trust (QQQ - Free Report)

Invesco NASDAQ 100 ETF (QQQM - Free Report)

Invesco NASDAQ Next Gen 100 ETF (QQQJ - Free Report)

Fidelity Nasdaq Composite Index ETF (ONEQ - Free Report)

Simplify Nasdaq 100 PLUS Convexity ETF (QQC)


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