- Which Stocks are Powering the Index Higher? The Nasdaq 100 is the market’s growth engine, and the top 9 holdings in Invesco’s ETF (QQQ) make up more than half of […]
Which Stocks are Powering the Index Higher?
The Nasdaq 100 is the market’s growth engine, and the top 9 holdings in Invesco’s ETF (QQQ) make up more than half of the market capitalization of the index. So where those stocks go, the rest follow. More specifically, those of the top 9 that show above average performance are leading the other 96, whether it be higher or lower.
Monday marked a second consecutive rebounding day for the market. And it is useful to look closer and see which stocks are the best vehicle for growth right now.
Since the beginning of the fourth quarter, four stocks powered through earnings season and emerged as leaders, even though investors showed a good deal of disagreement about the prospects of the market at large once all the reports were in.
Nvdia (NVDA) marked the last of these top holdings to report earnings, and although their numbers sounded great and the company issued very optimistic guidance for the future, the market sold off heavily the next day. By contrast, Google, Broadcom, Amazon and Apple, showed more relative strength than the others. Should the market continue higher, these are the four likely to lead the way.
What is Coming Out the Exhaust Pipe?
The stocks trailing behind are not those one might suspect, but Microsoft (MSFT), Netflix (NFLX), Tesla (TSLA) and Meta (META) have actually underperformed the average this quarter. Should the market trend lower in the weeks ahead, these would be the best candidates to lead the slide.
However, during the Friday and Monday rebound, three stocks, META, TSLA, and NFLX move significantly higher, catching up to the average, distancing themselves from the two remaining laggards.
MSFT and NVDA seem to be weighing heavy on the markets. Both shared the pattern of recently giving a glowing report (MSFT in July), followed by a shockingly heavy selloff. For both of these stocks it appears that large investors (think Warren Buffett and the like) have sold heavily into good news so as to lighten their positions and take profits from the stocks’ big moves higher over the past year or two. Will large numbers of smaller investors jump in to fill the gap? Probably not on purpose.
Why is Google in the Driver Seat?
Why is Alphabet, which is represented by its Class A shares (GOOG), and Class C shares (GOOGL), so clearly leading all others higher in the Nasdaq right now?
Much can be said about the company’s fabulous execution of its business structure and its savvy AI strategy. However, could it be that the simple truth about the twin tickers and their broad representation in the ETF universe is a secret hiding in plain sight?
Consider this: either GOOG or GOOGL is a component in the top 15 holdings of more than 832 ETFs. They are held in smaller amounts of thousands of other funds as well. By contrast, the next highest stock in the list, NVDA, is held in 558 such funds, according to VettaFi (etfdb.com).
The other seven stocks in the top nine range from 541 (MSFT) down to 175 (NFLX). And this does not include representation in any of the several thousand mutual funds available through 401(k) funds–America’s primary source of retirement savings for the gainfully employed.
Every two weeks as a skim from the paychecks of the working class finds its way into the market via the designated savings percentage and the employer’s match, each of these nine stocks gets a healthy slice of the pie, with GOOG and GOOGL getting fattest right now. It’s all a big desert party as long as investors stay hungry for more. So it makes sense to keep an eye on those tickers as a bellwether for the rest of the market.
Gordon Scott, CMT is a former managing director of the CMT Association and a current member of the Investopedia Financial Review board. He has over 20 years of experience as a coach and trader in securities, futures, forex, and penny stocks. He is a co-founder of Edge Finder. Learn more at https://myedgefinder.com/.
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