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Summary

  • The PowerShares QQQ posted a higher return between January and July than did any of the three most popular ETFs based on the S&P 1500's constituent indexes.
  • The derivative of the Nasdaq-100 Index even recorded a positive return last month, when each of the other three ETFs registered negative returns.
  • However, seasonality analysis and U.S. Federal Reserve policy shifts indicate the fund's performance could suffer in the third quarter.

The PowerShares QQQ (NASDAQ:QQQ) behaved admirably from January to July, as the exchange traded fund ballooned to $95.02 from $87.15, a swelling of $7.86, or 9.02 percent, on an adjusted daily closing share price basis. It thus outperformed the SPDR S&P 500 ETF (SPY), up 5.51 percent; the SPDR S&P MidCap 400 ETF (MDY), up 2.61 percent; and the iShares Core S&P Small-Cap ETF (IJR), down -2.44 percent.

QQQ even did well last month, when it rose by 1.18 percent. In contrast, the other three ETFs fell; SPY by -1.34 percent, MDY by -4.39 percent and IJR by -5.56 percent.

Figure 1: QQQ Monthly Change, 2014 Vs. 2000-2013 Mean

(click to enlarge)

Source: This J.J.'s Risky Business chart is based on analyses of adjusted closing monthly share price data at Yahoo Finance.

QQQ behaved much better in the first seven months of this year than it performed in the comparable periods of its initial 14 full years of existence, based on the means calculated by employing data associated with that historical time frame (Figure 1). The same data set shows the average year's weakest quarter was the third, with a sizable negative return, and its strongest quarter was the fourth, with an even more sizable positive return.

Figure 2: QQQ Monthly Change, 2014 Vs. 2000-2013 Median

(click to enlarge)

Source: This J.J.'s Risky Business chart is based on analyses of adjusted closing monthly share price data at Yahoo Finance.

QQQ behaved better in the first seven months of this year than it performed in the comparable periods of its initial 14 full years of existence, based on the medians calculated by using data associated with that historical time frame (Figure 2). The same data set shows the average year's weakest quarter was the first, with a relatively small positive return, and its strongest quarter was the fourth, with an absolutely large positive return.

Don't Fight The Fed

I have called the Federal Reserve's current quantitative easing program QE3+ in articles such as "SPY, MDY And IJR At The Fed's QE3+ Market Top" because in 2012, it first enabled massive Fed buys of agency mortgage-backed securities, and then encompassed massive Fed purchases of U.S. Treasury securities as well. U.S. equity market participants greeted the Fed's unprecedented printing of paper money for these dual purposes by moving stock prices to nosebleed levels in an indiscriminate manner.

More recently, however, Fed speakers have advised market participants time and again that QE3+ most likely will be consigned to the dustbin of history in October.

Accordingly, it is advisable for anyone with an interest in QQQ to assess the nature of the ETF's reaction to the conclusion of the Fed's previous QE program.

The Federal Open Market Committee announced in November 2010 that the Fed, under its QE2 program, would print $600 billion to buy Treasury securities between then and June 2011, which it subsequently did.

Bearing this in mind, I examined QQQ's behavior on an intraday basis throughout 2011. I found its high of the year was $59.83 on July 26 and its low of the year was $49.93 on August 9, meaning there were just nine trading days between peak and trough.

Say it with me: Vol-a-til-i-ty!

Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author's best judgment as of the date of publication, and they are subject to change without notice.

Source: QQQ: January-July 2014 Performance And Historical Seasonality