- The QQQ has ripped higher amid renewed expectations of interest rate cuts in 2024, but history shows that rate cuts tend to only occur after market declines.
- Even if the Fed eases aggressively as expected, expensive valuations, slowing growth, and widespread bullishness will act as headwinds to gains.
- The main risk comes from a Goldilocks macro scenario where inflation falls and growth recovers, but leading indicators suggest this is unlikely.
The article discusses three reasons why selling the Invesco QQQ Trust (QQQ) might be advisable despite the recent market rally driven by expectations of interest rate cuts in 2024. The author outlines the following points:
- Rate Cuts Usually Follow Market Declines: Historical data indicates that the Federal Reserve tends to cut interest rates after market declines and credit stress. The article argues that the current situation, where rate cuts are expected without a preceding market decline, may not be favorable for the QQQ.
- Expensive Valuations and Weaker Growth Outlook: Comparing the current situation to the rally in H2 2019, the author notes that valuations are higher, with the QQQ's PE ratio at over 30x, compared to around 23x in 2019. Additionally, the growth outlook is weaker, and the author anticipates a slowdown in growth relative to the economy and the S&P 500.
- Tech Stocks Are Overly Loved: The article highlights the universal positive sentiment towards major tech stocks, with no sell recommendations from Wall Street analysts for Google, Amazon, Nvidia, or Microsoft. The high level of hedge fund exposure to mega-cap tech is also noted as a potential risk.
