Tech shares led the market greater in January — which is usually the case. January is traditionally a robust month for the tech-heavy Nasdaq-100 Index.
However February tells a distinct story.
Invesco QQQ Belief (Nasdaq: QQQ), which tracks the Nasdaq-100 Index, started buying and selling in March 1999. Since then, the exchange-traded fund has delivered its weakest efficiency, on common — in February.
QQQ declined in that month about 60% of the time because it started buying and selling. There is just one different dropping month over that point — September (with a win price of simply 44%).
Many analysts marvel why February is so weak.
We might speculate that it’s associated to lower-than-expected earnings which might be reported within the final weeks of January and early February. Different well-liked arguments for why shares unload embody portfolio rebalancing and taxes.
These explanations all make nice headlines and could be spun into compelling narratives. However not considered one of them is more likely to be true.
Understanding the Invesco QQQ’s Weakest Month
The explanation QQQ declines in February (or in some other month) is as a result of there are extra sellers than consumers. When sellers act with larger urgency than consumers, costs fall.
This appears to occur very often in February. Figuring out that, we must always take into consideration protection for our portfolio.
That’s particularly necessary in 2024. In presidential election years, QQQ tends to commerce in a comparatively slender vary from February by means of April. This coincides with the primaries and will replicate uncertainty about who the nominees shall be.
I do know this 12 months is totally different. We expect we all know who this 12 months’s nominees are. However we nonetheless have loads of time earlier than the election. Neither presumptive nominee is very well-liked. It’s attainable somebody aside from Biden or Trump could possibly be on the poll in November.
Except for it being a presidential election 12 months, we see one other sample suggesting a pullback…
Will Tech Shares Pull Again in February?
Including to chance of a decline in tech shares is QQQ’s massive acquire in January. In earlier years after a robust begin, QQQ was down 58% of the time. It’s been the worst performing month of the 12 months after a giant acquire within the earlier month, dropping a mean of two.2%.
Now, none of this implies tech shares will definitely fall this month. There have been just a few occasions when good points adopted January rallies. However it’s finest to organize for a pullback out there leaders.
If you happen to’re bullish on long-term alternatives within the tech sector, weak point might sign a shopping for alternative. Alternatively, when you’re bearish on the economic system for 2024, or consider shares are overvalued, now could possibly be time to safe earnings.
After all, the seasonal tendencies pointing to tech inventory weak point needs to be confirmed by different indicators.
Keep in mind that costs fall when sellers are performing with urgency. This implies we might see a shift to bearish sentiment earlier than market weak point.
Whereas financial information has been good, that would change as quickly as tomorrow when the unemployment report is launched. Keep tuned to Banyan Edge for well timed updates as I carefully monitor the ever-changing market.
Editor, Precision Income