VTI - QQQ: Prepare For Turbulence

2024-03-26 08:30:00 ET

Summary

• GenAI is going to change the world, but liquidity has been the primary driver of the rally in risk assets off of the October 2022 lows.
• Since Q1 2023, the Fed's Quantitative Tightening has been outpaced by draining of Reverse Repos and Treasury General Account, resulting in net liquidity addition of $771B!
• Unfortunately, all good things must come to an end, and this pent-up liquidity from the free money era is about to wind down soon.
• The tech-heavy Invesco QQQ Trust ETF is sitting near all-time highs, but high valuations, wildly bullish sentiment, and loss of technical momentum are warning signs for prudent investors to take cover.

Introduction

With GenAI captivating the investing world [much like the Internet did back in the late 1990s], the high-flying technology sector has led broad equity indices like the Nasdaq 100-Index (NDX) as represented by Invesco QQQ Trust ETF ( QQQ ) and S&P 500 (SP500) by SPDR® S&P 500 ETF Trust ( SPY ) to new all-time highs in early 2024. Despite "Magnificent 7" stocks dominating the headlines and rightly getting most of the credit for the ongoing "high-quality" rally in equity markets, the run-up in risk assets also has shades of speculative mania, with the likes of Carvana ( CVNA ) and Bitcoin ( BTC-USD ) handily outperforming broader tech-heavy indices over the past year....

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