©Reuters. Jim Cramer thinks this ETF’s outperformance is “pretty amazing” — here’s why
Benzinga — Tech stocks have been soaring this year after underperforming in 2022 — and CNBC “Mad Money” host Jim Cramer took to Twitter to praise the performance of a major exchange-traded fund in the tech sector.
What Happened: “The outperformance of the QQQs is pretty amazing,” Cramer tweeted on Friday, referring to the Invesco QQQ Trust (NASDAQ: QQQ).
QQQ is an ETF tracking the Nasdaq-100 Index, which includes Apple, Inc. (NASDAQ: AAPL), Alphabet, Inc. (NASDAQ: GOOGL) (NASDAQ: GOOG) and Microsoft Corp. (NASDAQ:MSFT) belong. These companies are at the forefront of transformative technologies such as augmented reality, cloud computing, big data, mobile payments, streaming services, electric vehicles, and more. Microsoft and Apple are the top components of the index with weights of 12.58% and 12.24% respectively.
Year-to-date, QQQ is up about 14.7%, compared to a 2.4% gain for the SPDR S&P 500 ETF Trust (NYSE: SPY), an ETF that tracks the S&P 500 Index (a broader view of the market).
Diagram courtesy of BenzingaPro
Incidentally, QQQ was down 32.6% in 2022, lagging the SPY, which was down a more modest 18%.
Also Read: The Best Tech Stocks to Buy Right Now
Techs Stage Comeback: The underperformance has clearly benefited the tech sector as investors see many of them as bargains.
After a series of aggressive rate hikes conducted by the Fed since March 2020, most expect the central bank to either ease or pause rate hikes due to a slowdown in inflationary pressures. This belief has gained ground in the wake of the recent banking crisis. A Fed pause is seen as a prerequisite for kickstarting growth.
When economic conditions improve, growth stocks like tech companies typically lead the market’s recovery.
With innovation being the key to growth, pioneering technologies like OpenAI’s ChatGPT have recently gained popularity. In fact, several high-profile tech companies have targeted artificial intelligence and machine learning—the technologies behind chatbots—either as facilitators or adopters. In January, Microsoft reportedly inked a $10 billion deal with OpenAI to integrate GPT-4 into its Bing search engine and cloud applications. Alphabet is also developing its own version of the chatbot. And given its expertise in manufacturing AI chips, Nvidia Corp. (NASDAQ: NVDA), a California-based multinational, is set to be the biggest beneficiary of this trend.
The lineup for tech names represents a “compelling risk-reward trade-off” for quality tech names for the remainder of the year, Wedbush analyst Daniel Ives said in a recent note.
“Although it sounds like a Twilight Zone comment to many investors; Tech stocks have become the new security trade, with big tech names being a key beneficiary of this momentum,” he added.
Continue reading: Will AI develop a mind of its own and elude human control? Here’s what Bill Gates has to say
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