What happened

The Invesco QQQ Trust (QQQ -0.57%) got off to a good start in 2023, as the exchange-traded fund (ETF) finished the month of January up 10.6%, according to S&P Global Market Intelligence. It is a nice bounce-back month for the ETF, which was down 32.6% in 2022. 

So what

The Invesco QQQ is one of the most popular ETFs in the world, with $156 billion in assets under management. It is a fund that tracks the performance of the Nasdaq 100, which includes the approximately 100 largest stocks on the Nasdaq Stock Exchange, not including financial stocks.

The ETF is heavily technology weighted, and it is often considered the primary bellwether for the direction of technology stocks. About 49% of the portfolio is invested in the information technology sector, while roughly 17% is in communication services. Consumer discretionary is the third-largest sector at 16%, followed by healthcare (7%), consumer staples (6%), industrials (4%), utilities (1%), and energy (0.5%).

The ETF's three largest holdings are Apple (11.9%), Microsoft (11.7%), and Amazon (6.7%).

So, it turned out to be a pretty good month for tech stocks, as the Nasdaq Composite was up 10.7% in January, marking its best January since 2001. The Nasdaq 100 was up about the same percentage; thus the QQQʻs strong performance.

The Nasdaq was driven by a strong month for stocks like Apple, which is up about 11%; Amazon, which is up about 22%; and Alphabet, which is up about 12% year to date (YTD). Microsoft is up 3.3% YTD, as it beat fourth-quarter earnings estimates.  

The market reacted favorably to tech stocks based on several macroeconomic factors, including decent economic growth, with the gross domestic product rising 2.9% in the fourth quarter; inflation continuing to cool; unemployment rates still low; and wage growth decelerating, among other factors.

Now what

It was a good start to the year for the Invesco QQQ, but February will indeed be an interesting month. The Federal Reserve increased interest rates by 25 basis points on Feb. 1 to the 4.25% to 4.50% range, which the market took as a positive, as the Fed continues to decelerate its rate hikes. After four straight 75 basis points hikes, the Fed dropped the increase to 50 basis points in December and now 25 basis points in February. It comes as inflation rates slowly drop.

But the big factor for the QQQ is the rash of big tech earnings, starting with Meta Platforms after market close on Feb. 1, and Apple, Amazon, and Alphabet on Feb. 2. Stay tuned.