Dow 10,000? The Nasdaq 100 ETF Is the Superior Story

Lost in the Dow 10000 celebration was a more impressive 1-year high. Take a look at the difference between the Diamond Dow 30 (DIA) and the Nasdaq 100 proxy, QQQQ.

From the bull market top to the bear’s March 09 low, both DIA and QQQQ had surrendered more than 50% in value; both gave up nearly identical amounts in unrealized losses.

However, the bear-to-date “comeback” strongly favors the Nasdaq 100 over the Dow 30. The Powershares QQQQ is only 20% off of its bull market peak whereas the Dow is 30% off its pinnacle.

Why is this significant? For one thing, the world often regards the Dow as the less risky stock index. Consider the bear market losses for 2000-2002 where the Dow posted -33%, the S&P 500 logged -50% and the Nasdaq 100 came in with a life-altering -80%. Clearly, the Dow and Nasdaq 100 sharing a similar “top-to-bottom” decline (2007-2009) is intriguing.

More intriguing are the implications going forward; specifically, the QQQQ’s -20% would require a 25% gain to revisit October 2007 highs. DIA? The -30% requires 43%. A very optimistic outlook might suggest that Nasdaq investors might require 2 1/2 years of favorable waters, while the Dow folks might need 4 1/2 to 5 years.

Many might make the economic argument that the Nasdaq 100 represents the growth stock stories from the tech and biotech space; meanwhile, the Dow Industrials tells us more about potential value and conglomerate well-being. I’m not willing to sign off on economic growth as the primary reason for the Dow-Nasdaq performance discrepancy.

For me, it’s mostly about the weak U.S. dollar. Its ongoing decline since a top in March 2009 has made U.S. stocks super inexpensive to the rest of the world. What’s more, hedge funds and traders use the dollar carry trade to buy riskier assets. And what’s more risky than the SPDR Financials (XLF)?

(It’s hard to understate the influence of the dollar carry trade’s impact. Since the dollar’s dramatic descent began in March, few would claim that XLF is more fundamentally valuable or economically viable than the tech proxy Powershares QQQQ. And yet, what’s getting the biggest pop!)

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[SeekingTruth:]

Gary, Keen insight and observations, Thanks.
PS: I like, and find valuable, your other articles also.

Oct 20 11:40 AM