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ETFs to Benefit as Nasdaq's Breakthrough Still Matters
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Key Takeaways
Nasdaq hits a record as AI stocks rally despite elevated Treasury yields.
Strong AI demand lifts mega-cap tech and semiconductor stocks.
QQQ, QQQM, SMH and SOXX could benefit from continued AI momentum.
The Nasdaq Composite extended its record-setting run as investors continued to favor technology and artificial intelligence (AI) stocks despite elevated U.S. Treasury yields and lingering inflation concerns.
The index rose 1.05% on Oct. 5 and grew further on Oct. 6, when the Nasdaq Composite inched up another 0.45% to close at a record of 27,599.79.
The index has risen 18.5% year to date, highlighting the continued strength of the growth and technology stocks. The latest gains have been particularly notable because they came against a backdrop of elevated Treasury yields, with the 10-year Treasury yield at 5.34%.
AI Stocks Drive the Momentum
The latest Nasdaq rally has been closely tied to the continued enthusiasm surrounding AI. Large technology companies with significant exposure to AI infrastructure, cloud computing and data centers have been the key contributors to the index's advance.
Momentum in AI-related stocks continued on Oct. 6, with Marvell Technology (MRVL - Free Report) gaining 5.8%, Advanced Micro Devices (AMD - Free Report) advancing nearly 3% and Broadcom (AVGO - Free Report) rising 3.7%. Meanwhile, Nvidia's (NVDA - Free Report) market capitalization reached $6 trillion, underscoring the enormous investor interest in AI-focused companies.
This strength is important for technology-focused ETFs because many of these funds have substantial exposure to the same mega-cap technology and semiconductor companies driving the Nasdaq's gains.
Why Is Nasdaq Rising Despite High Treasury Yields?
Usually, higher Treasury yields can pressure growth and technology stocks because the present value of their future earnings becomes less attractive as discount rates rise. Yet the current market has shown unusual resilience.
This is due to the strength of the massive AI rally. Investors appear willing to look beyond elevated borrowing costs because companies involved in AI infrastructure continue to benefit from strong demand for computing power, data centers, semiconductors and cloud services.
The latest market action, therefore, suggests that investors are placing greater emphasis on earnings growth and AI-related capital spending than on the negative valuation impacts of higher interest rates.
Oil Prices Ease Pressure on Stocks
Oil prices have provided some additional relief to equity investors. Brent crude settled at $100.32 a barrel on Oct. 5, whereas West Texas Intermediate was at $89.43.
Lower crude prices can help ease concerns about another inflationary shock, particularly as investors remain focused on the impacts of Middle East tensions on energy supplies.
Though prices have risen again recently, their continued volatility means another pullback would not be unusual. Such a move could provide further support to the technology sector’s rally. For technology stocks, any stabilization in energy prices could be particularly important because it may reduce pressure on inflation expectations and, in turn, on Treasury yields and Fed policy.
ETFs in Focus
Although the Nasdaq pulled back yesterday, further strength in the index and technology stocks could make increasing exposure to the sector a worthwhile move.
Any further weakness could present an attractive entry point, as markets remain focused on the long-term growth potential of AI and the broader technology sector.
ETFs mentioned below could benefit if the AI-led rally regains momentum and broadens across technology and semiconductor stocks.
Invesco QQQ Trust Series I ETF (QQQ - Free Report) is designed to track the Nasdaq-100 Index. Its portfolio is heavily tilted toward technology and growth-oriented companies, making it particularly sensitive to trends in AI, semiconductors, cloud computing and digital services.
QQQ warrants close attention, given its significant exposure to key Nasdaq and AI-related stocks, including Nvidia (8.51%), Microsoft (5.80%), AMD (4.32%), Meta Platforms (3.24%), SpaceX (3%), Tesla (2.95%) and Broadcom (2.64%), making the ETF well-positioned to benefit from the Nasdaq’s ongoing rally.
QQQ has assets under management worth 506.1 billion and an expense ratio of 0.18%. The fund trades at a three-month average volume of 35.12 million shares. QQQ presently carries a Zacks ETF Rank #2 (Buy).
Invesco Nasdaq 100 ETF (QQQM - Free Report) tracks the Nasdaq-100 Index and, hence, is heavily exposed to the same large-cap technology and growth companies.
QQQ warrants close attention, given its significant exposure to key Nasdaq and AI-related stocks, including Nvidia (8.51%), Microsoft (5.80%), AMD (4.32%), Meta Platforms (3.24%), SpaceX (3.01%), Tesla (2.95%) and Broadcom (2.64%), making the ETF well-positioned to benefit from the Nasdaq’s ongoing rally.
QQQM has assets under management worth $112.88 billion and an expense ratio of 0.15%. The fund trades an average three-month volume of almost 3 million shares. QQQM presently sports a Zacks ETF Rank #1 (Strong Buy).
VanEck Semiconductor ETF (SMH - Free Report) is a U.S.-listed ETF that gives investors concentrated exposure to the semiconductor industry.
SMH warrants close attention, given its significant exposure to key Nasdaq and AI-related stocks, including Nvidia (19.52%), AMD (5.68%), Broadcom (5.35%) and MRVL (4.67%), making the ETF well-positioned to benefit from the tech stock surge.
SMH has assets under management worth $78.04 billion and an expense ratio of 0.35%. The fund trades at a three-month average volume of 8.55 million shares. SMH presently sports a Zacks ETF Rank #1.
iShares Semiconductor ETF (SOXX - Free Report) is a semiconductor-focused ETF that provides exposure to companies across the semiconductor value chain, including chipmakers and semiconductor-equipment manufacturers.
SOXX warrants close attention, given its significant exposure to key Nasdaq and AI-related stocks, including AMD (9.55%), Nvidia (7.48%), AVGO (7.07%) and MRVL (4.68%), making the ETF well-positioned to benefit from the tech stock surge.
SOXX has assets under management worth $48.60 billion and an expense ratio of 0.33%. The fund trades at a three-month average volume of 8.17 million shares. SOXX presently sports a Zacks ETF Rank #1.
View the Zacks #1 Rank List
Image: Bigstock
ETFs to Benefit as Nasdaq's Breakthrough Still Matters
Key Takeaways
The Nasdaq Composite extended its record-setting run as investors continued to favor technology and artificial intelligence (AI) stocks despite elevated U.S. Treasury yields and lingering inflation concerns.
The index rose 1.05% on Oct. 5 and grew further on Oct. 6, when the Nasdaq Composite inched up another 0.45% to close at a record of 27,599.79.
The index has risen 18.5% year to date, highlighting the continued strength of the growth and technology stocks. The latest gains have been particularly notable because they came against a backdrop of elevated Treasury yields, with the 10-year Treasury yield at 5.34%.
AI Stocks Drive the Momentum
The latest Nasdaq rally has been closely tied to the continued enthusiasm surrounding AI. Large technology companies with significant exposure to AI infrastructure, cloud computing and data centers have been the key contributors to the index's advance.
On Oct. 5, Tesla (TSLA - Free Report) climbed about 2% and SpaceX (SPCX - Free Report) gained roughly 7%, with Meta Platforms (META - Free Report) and Microsoft (MSFT - Free Report) showing progress as well.
Momentum in AI-related stocks continued on Oct. 6, with Marvell Technology (MRVL - Free Report) gaining 5.8%, Advanced Micro Devices (AMD - Free Report) advancing nearly 3% and Broadcom (AVGO - Free Report) rising 3.7%. Meanwhile, Nvidia's (NVDA - Free Report) market capitalization reached $6 trillion, underscoring the enormous investor interest in AI-focused companies.
This strength is important for technology-focused ETFs because many of these funds have substantial exposure to the same mega-cap technology and semiconductor companies driving the Nasdaq's gains.
Why Is Nasdaq Rising Despite High Treasury Yields?
Usually, higher Treasury yields can pressure growth and technology stocks because the present value of their future earnings becomes less attractive as discount rates rise. Yet the current market has shown unusual resilience.
This is due to the strength of the massive AI rally. Investors appear willing to look beyond elevated borrowing costs because companies involved in AI infrastructure continue to benefit from strong demand for computing power, data centers, semiconductors and cloud services.
The latest market action, therefore, suggests that investors are placing greater emphasis on earnings growth and AI-related capital spending than on the negative valuation impacts of higher interest rates.
Oil Prices Ease Pressure on Stocks
Oil prices have provided some additional relief to equity investors. Brent crude settled at $100.32 a barrel on Oct. 5, whereas West Texas Intermediate was at $89.43.
Lower crude prices can help ease concerns about another inflationary shock, particularly as investors remain focused on the impacts of Middle East tensions on energy supplies.
Though prices have risen again recently, their continued volatility means another pullback would not be unusual. Such a move could provide further support to the technology sector’s rally.
For technology stocks, any stabilization in energy prices could be particularly important because it may reduce pressure on inflation expectations and, in turn, on Treasury yields and Fed policy.
ETFs in Focus
Although the Nasdaq pulled back yesterday, further strength in the index and technology stocks could make increasing exposure to the sector a worthwhile move.
Any further weakness could present an attractive entry point, as markets remain focused on the long-term growth potential of AI and the broader technology sector.
ETFs mentioned below could benefit if the AI-led rally regains momentum and broadens across technology and semiconductor stocks.
Invesco QQQ Trust Series I ETF (QQQ - Free Report) is designed to track the Nasdaq-100 Index. Its portfolio is heavily tilted toward technology and growth-oriented companies, making it particularly sensitive to trends in AI, semiconductors, cloud computing and digital services.
QQQ warrants close attention, given its significant exposure to key Nasdaq and AI-related stocks, including Nvidia (8.51%), Microsoft (5.80%), AMD (4.32%), Meta Platforms (3.24%), SpaceX (3%), Tesla (2.95%) and Broadcom (2.64%), making the ETF well-positioned to benefit from the Nasdaq’s ongoing rally.
QQQ has assets under management worth 506.1 billion and an expense ratio of 0.18%. The fund trades at a three-month average volume of 35.12 million shares. QQQ presently carries a Zacks ETF Rank #2 (Buy).
Invesco Nasdaq 100 ETF (QQQM - Free Report) tracks the Nasdaq-100 Index and, hence, is heavily exposed to the same large-cap technology and growth companies.
QQQ warrants close attention, given its significant exposure to key Nasdaq and AI-related stocks, including Nvidia (8.51%), Microsoft (5.80%), AMD (4.32%), Meta Platforms (3.24%), SpaceX (3.01%), Tesla (2.95%) and Broadcom (2.64%), making the ETF well-positioned to benefit from the Nasdaq’s ongoing rally.
QQQM has assets under management worth $112.88 billion and an expense ratio of 0.15%. The fund trades an average three-month volume of almost 3 million shares. QQQM presently sports a Zacks ETF Rank #1 (Strong Buy).
VanEck Semiconductor ETF (SMH - Free Report) is a U.S.-listed ETF that gives investors concentrated exposure to the semiconductor industry.
SMH warrants close attention, given its significant exposure to key Nasdaq and AI-related stocks, including Nvidia (19.52%), AMD (5.68%), Broadcom (5.35%) and MRVL (4.67%), making the ETF well-positioned to benefit from the tech stock surge.
SMH has assets under management worth $78.04 billion and an expense ratio of 0.35%. The fund trades at a three-month average volume of 8.55 million shares. SMH presently sports a Zacks ETF Rank #1.
iShares Semiconductor ETF (SOXX - Free Report) is a semiconductor-focused ETF that provides exposure to companies across the semiconductor value chain, including chipmakers and semiconductor-equipment manufacturers.
SOXX warrants close attention, given its significant exposure to key Nasdaq and AI-related stocks, including AMD (9.55%), Nvidia (7.48%), AVGO (7.07%) and MRVL (4.68%), making the ETF well-positioned to benefit from the tech stock surge.
SOXX has assets under management worth $48.60 billion and an expense ratio of 0.33%. The fund trades at a three-month average volume of 8.17 million shares. SOXX presently sports a Zacks ETF Rank #1.