Growth stocks and the related exchange traded funds are enduring a forgettable 2022, due in large part to the Federal Reserve’s six interest rate increases, but the October reading of the Consumer Price Index (CPI) could be a sign that the central bank may have leeway to lay off the rate hike accelerator in 2023. That remains to be seen, but if inflation declines enough to allow the Fed to pause rate hikes, that scenario could be a boon for growth-heavy ETFs such as the Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ).
While QQQ and QQQM are considered broad ETFs — a trait that served investors well during the prior growth-led bull market — many components in both ETFs are levered to emerging, nuanced technology themes with long runways for growth. Those include cloud computing and cybersecurity.
“Cyberattacks are up 81% over pre-pandemic levels and the potential loss from a breach could be catastrophic,” according to BlackRock research. “As a result, companies and individuals may look to invest more in securing their digital assets and ETFs providing access to cybersecurity companies could benefit from a significant increase in cyber defense spending.”
Several components in both QQQ and QQQM — which track the same index — are dedicated cybersecurity companies, while others have indirect exposure to the industry. The ETFs’ cybersecurity exposure is relevant because other tech-heavy industries are heavily reliant on cybersecurity, which adds to the growth trajectory of related companies.
“In fact, a recent Morgan Stanley survey found that security software is the least likely IT expense to be pared back by executives if the economy worsens.19 So, while economic challenges may result in decreased revenues for many technology companies, cybersecurity providers will likely continue to grow as businesses and governments seek to protect themselves,” noted BlackRock.
Beyond traditional and emerging technology, QQQ and QQQM are both levered to the emergence of the clean tech and electric vehicle industries. That could mean that as the recently enacted Inflation Reduction Act takes hold, the Invesco ETFs could benefit.
“This law advances an additional prong of the Biden administration’s economic agenda, building on last year’s Infrastructure Investment and Jobs Act (IIJA), which drove historic spending in U.S. infrastructure and included tens of billions for clean energy, electric vehicles and other related technologies. We anticipate that this spending has the potential to translate to significant revenues for clean energy companies and electric vehicle firms for years to come,” concluded BlackRock.
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