Why did the Nasdaq 100 Index and its ETFs like QQQ, JEPQ plummet?

The Nasdaq 100 Index and its related ETFs, like QQQ and JEPQ plunged last week as concerns about technology valuations and the ongoing government shutdown continues. It plunged to $25,000 from the year-to-date high of $26,143. 

Similarly, the Invesco QQQ Trust (QQQ) plunged to $610 from the all-time high of $636, while the JPMorgan NASDAQ Equity Premium Income ETF (JEPQ) plunged to $57 from the all-time high of $59.5. So, why did these assets plunge?

Nasdaq 100 Index plunged after Palantir and AMD earnings

One main reason why the Nasdaq 100 and its ETFs like JEPQ  and QQQ plunged is that popular companies in the AI industry like Palantir and AMD published strong results, but issued guidance that did not please investors.

Palantir, a top player in the AI industry, said that its revenue rose by 63% in the last quarter to $1.18 billion, led by its US commercial revenue, which surged by 121% to $397 million. The company expects that its fourth-quarter revenue will be between $1.32 billion and $1.331 billion, respectively.

AMD, one of the biggest companies in the semiconductor industry, also published strong results, with its revenue rising to $9.2 billion and its net income coming in at $1.2 billion.

While these results were generally good, investors did not like the guidance, pushing them to plunge by double digits during the week.

The two stocks dropped because they had jumped sharply before their earnings release last week. As such, their stocks dropped as investors sold the news.

Fear of the AI bubble 

In line with this, the Nasdaq 100 Index and its ETFs dropped amid the ongoing fear that the artificial intelligence bubble is bursting.

These concerns have remained in the past few months as more companies continue to invest in the industry. In a statement last week, Meta Platforms committed to invest about $600 billion in the sector in the next few years.

Other top companies like Microsoft and OpenAI have continued to spend billions of dollars in the industry, leading to stretched valuations among top companies in the industry, like Palantir and Nvidia.

Therefore, some investors believe that the AI bubble could be starting to burst as companies in the industry have not demonstrated their AI revenue growth after all these investments.

In line with this, the Nasdaq 100 Index dropped amid heightened valuation risks, with its price-to-earnings multiple being above 35, much higher than the S&P 500 Index’s 22. As such, the decline was as part of the valuation reset.

Federal Reserve and the government shutdown 

The Nasdaq 100 Index and its ETFs, like QQQ and the JEPQ fund also dropped as concerns about the government shutdown continue. 

The shutdown has now gone on for over a month and is not showing any signs of ending as Democrats and Republicans have maintained their hard positions.

This shutdown has led to the lack of macroeconomic data in the United States as the Bureau of Labor Statistics and other federal agencies have been closed.

As such, there are fears that the Federal Reserve is flying blind when delivering its interest rate decision. 

Still, on the positive side, history shows that the Nasdaq 100 Index plunges are normally good entry positions for investors as it always rebounds. 

Therefore, there is a likelihood that it will rebound in the coming weeks as these fears fade. As such, this rebound will likely push the index to jump to a record high in the coming weeks.

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