QQQ Forecast for 2023 and Beyond

QQQ Forecast - short term and long term outlooks for the Invesco QQQ

The Invesco QQQ limps into 2023 after losing over 30% of its value last year. With inflation and interest rates still at the top of investor's worries, is it there any good news to expect from my 2023 QQQ forecast? As always, it depends on your investing horizon and the opportunity cost.

I have broken this forecast up into a short term and long term outlook. While my plan is to hold QQQ shares for multiple years, it is an ETF that attracts day traders and swing traders, so we will cover both approaches.

QQQ Short Term Forecast

For a short term forecast, I am looking at the first half of 2023. This period covers the first two quarters of earnings as well as the first 4 FOMC meetings. The anticipation of continued interest hikes will likely keep earnings estimates down and fear levels escalated. This makes for a tough environment for the QQQ to break out unless we see several bullish headlines in the news.

The first quarter's earnings reports and guidance notes will set the stage for sentiment through June. Most of the scrutiny will revolve around the Top 10 QQQ holdings, which account for about 50% of the funds value. The current lineup of top stocks includes MSFT, AAPL, AMZN, GOOG, NVDA, TSLA, META, PEP, AVGO, and COST. How these companies fare, combined with their outlooks for 2023, will determine which way the QQQ moves in the first part of the year.

Beyond Q1 earnings, there is a large contingent of investors who are waiting for the QQQ to break above its 200 day moving average. You can see in the chart below the level to watch is around $300. Any move above this trend line could attract a steady inflow of money that is currently parked on the sidelines.

(Note: All of the charts and data posted here come from Seeking Alpha Premium. You can find exclusive Seeking Alpha discount offers here.)

QQQ moving averages
QQQ moving averages

Another point of analysis to review in the short term is the Seeking Alpha quant rating for the QQQ. Their quant score primarily focuses on short term indicators to provide a buy, sell or hold rating. In the image below, you can see the QQQ currently has a sell rating. The ETF Grades show that price momentum has decreased from the 3 month and 6 month periods before. The risk grade also remains elevated, as it has been over the past 6 months.

Seeking Alpha quant rating for QQQ

On the bright side, you'll notice that asset flows and expenses have held their positive grades. Because the QQQ has such incredible trading volume and AUM, it is one the highest traded ETFs in the world. While the underlying assets can lose value in bear markets, it is incredibly unlikely the QQQ would ever got to zero or liquidate.

QQQ Long Term Forecast

For this long term outlook, I am looking ahead to the second half of 2023 and into 2024. Keep in mind that most of the Q4 earning reports of 2023 will not be released until January or February of 2024. Because I am always looking ahead, using forward EPS and revenue metrics, I have to incorporate full-year projections to make an assessment.

The table below shows the current forward PE and PEG ratios for the top ten stocks in the QQQ. Remember, these 10 stocks represent over 50% of the fund's value, so any dramatic moves in these names will determine the direction of the QQQ price action.

Forward PE for top 10 stocks in the QQQ
Forward PE for Top 10 stocks in the QQQ

In a perfect world the forward PE's should be less than the trailing PE's in the table above. This would indicate that earnings are projected to rise, and therefore the forward PE multiples should decline over today's. This is the case for MSFT, NVDA, TSLA, AVGO and COST.

The others show flat or negative (increase) in their forward PE's. This is a concern in terms of potential upside over both the short and long term. However, Wall Street analysts who make earnings projections are concerned about interest rates and recession. They are lowering their EPS projections across the board. It is possible that guidance and projections improve as early as after the first wave of earnings reports.

What I find interesting is the table below, which shows revenue and earnings projections in percentage growth terms…

Forward Revenue and EPS projections for QQQ top stocks
Forward Revenue and EPS projections for Top QQQ Stocks

If you compare the forward revenue column with the forward EPS column you will see that 8 of our 10 top QQQ components are expected to grow both revenue and EPS next year. This data comes from the analysts who produced the PE table we reviewed earlier.

What is most surprising to me is the fact that 5 of the 10 stocks are projected for double-digit growth on both the revenue and EPS lines. You could even include COST in that bunch if you round up their revenue projection to 10%.

As some who looks for stocks growing double digits on both the top and bottom line, I am encouraged by the table above. Obviously this projections will adjust after the Q4 earnings reports are released over the next few weeks.

Right now the long term forecast looks fairly flat through 2023. If nothing changes through earnings then the QQQ will likely trade in a range of $270 to $300.

2023 Price Prediction

If we see a slew of downgrades after CEO's release their full year guidance, then the QQQ will struggle to reach $300 in 2023. The flip side of that, if the Fed pauses rates later in the year and recession fears subside, likely sets these stocks up for upgrades across the board. In this scenario I project a 20% gain for the year, which would put the QQQ around $325.