Despite my growing skepticism on the Invesco QQQ Trust Series 1 (NASDAQ:QQQ), the exchange-traded fund continues to hang on, putting investors into a bit of a quandary. On one hand, QQQ stock is down noticeably since around mid-February of this year while benchmark indices like the Dow Jones Industrial Average or the S&P 500 are up.
However, the Nasdaq composite index is tied to the most aspirational and innovative companies, justifying belief in them.
Indeed, our own Matt McCall, who has been pounding the table for years regarding the Roaring 2020s, is adamant about staying the course with QQQ stock. According to McCall’s thesis, “As we shift from one decade to the early parts of another, investors shouldn’t expect tech to underwhelm. If anything, they should expect the opposite: for tech to continue leading the charge.”
Fundamentally, he makes a powerful argument. Two decades ago, the idea of personal transportation utilizing an alternative fuel source was science fiction – and more fiction than science. We saw oil prices rise dramatically during the post-9/11 years and there wasn’t anything anyone could do about it.
But today, we have ample choices regarding hybrid cars and electric vehicles.
True, we’re still a bit off from mainstreaming EVs. But the difference this time is that credibility exists when people talk about full EV integration. That’s one element driving QQQ stock.
Another is in the profound medical technologies that have been developed over the years. Obviously, the rapid manufacturing and distribution of novel coronavirus vaccines is a testament to the innovations in the biotechnology space. It’s also emblematic of why so many prominent investors and analysts say that you should never bet against America.
Finally, as McCall points out, QQQ stock comes down to performance. Over the long run, it’s been delivering the goods. Now is not the time to abandon it.
Ghosts of the 1920s Cloud the 2020s
I’m not here to argue against Matt McCall – he’s got the cool name and the track record and I do not. From a probability point of view, you may be better off listening to him than you are listening to me.
What I like to do, though, is to cover some angles that may not get much airtime. How that ultimately impacts QQQ stock – if at all – remains to be seen. But at least I’d like to share this with you and let you decide how you want to proceed forward.
As you know, other analysts have compared the supposedly overheated nature of the market with the tech bubble of the late 1990s/early 2000s. However, bullish proponents counter that the tech bubble was truly insane, with essentially shell companies enjoying ridiculous valuations. Much of that was due to venture capitalists pushing initial public offerings for self-serving reasons, not because they believed in the IPO.
The argument is that we’re not seeing anywhere near that kind of stupid speculation. Therefore, QQQ stock is safe, right? Right?
Well, McCall has argued that the Roaring 2020s will see a convergence of multiple technologies spark a new era of radical innovations. But historically, this convergence doesn’t necessarily prevent severe market corrections.
For instance, Ford (NYSE:F) invented the Model T. Guglielmo Marconi (though it could have been Aleksandr Popov) invented the radio. Somebody else had the great idea of putting the radio in the car because radio advertisements became wildly popular. There’s your convergence – transportation, technology and media.
When did this occur? During the 1920s, with marketing literature suggesting that over time, American consumers will see more radios being fitted in their cars. Eventually, that became a reality. But that didn’t prevent the rampant speculation – such as excessively buying stocks on margin – that eventually led to the crash of 1929 and the Great Depression.
Uncanny Parallels for QQQ Stock
Again, if I had to debate McCall or anyone who has a similar thesis, that would be one of my strongest counterarguments – technology convergence does not spare us from market or economic catastrophe. Historically, it seems that whether you’re talking about 1929 or the tulip bubble, what tends to cause extreme boom-bust cycles is speculation.
And that’s what worries me about QQQ stock – there’s just too much speculation brewing in these popular tech names. Since I last talked about the QQQ ETF, FINRA released its data on stock trading on margin. Turns out, we went from a record-breaking month in January to another bigger record in February.
That leads me to one conclusion. If the bulls are right, they better be right in a resounding way. Because with so many people trading on margin, a wave of selling could make those lending brokerages mighty nervous.
On the date of publication, Josh Enomoto held a long position in F stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.