QQQ: Market-Implied Outlook To Early 2022

Seeking Alpha2021-09-29

Summary Options prices can be used to calculate the consensus outlook for QQQ, referred to as the market-implied outlook. The market-implied outlook for QQQ was bullish at the start of 2021, but ...

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keatwong
2021-09-29
keatwong
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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nQQQ: Market-Implied Outlook To Early 2022\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-09-29 17:53 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4457585-qqq-market-implied-outlook-to-early-2022><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nOptions prices can be used to calculate the consensus outlook for QQQ, referred to as the market-implied outlook.\nThe market-implied outlook for QQQ was bullish at the start of 2021, but ...</p>\n\n<a href=\"https://seekingalpha.com/article/4457585-qqq-market-implied-outlook-to-early-2022\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"QQQ","symbol_name":"纳指100ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4457585-qqq-market-implied-outlook-to-early-2022","article_id":"1150995392","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1150995392","pubTimestamp":1632909198,"sourceInfo":null,"weMediaInfo":null,"summary":"Summary\n\nOptions prices can be used to calculate the consensus outlook for QQQ, referred to as the m","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"QQQ":"纳指100ETF"},"translate_title":"QQQ:市场对2022年初的预期","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"QQQ":0.9},"content_text":"Summary\n\nOptions prices can be used to calculate the consensus outlook for QQQ, referred to as the market-implied outlook.\nThe market-implied outlook for QQQ was bullish at the start of 2021, but suggested that SPY offered a superior risk-return tradeoff.\nThe updated market-implied outlook for QQQ into early 2022 is bullish, with moderate volatility.\nThese results suggest the current elevated volatility, largely driven by fear of rising interest rates, is likely to be temporary.\n\nMassimo Giachetti/iStock Editorial via Getty Images\nThe Invesco QQQ ETF (NASDAQ:QQQ) is in an interesting place. The all-time high close for QQQ was $382.11 on September 7, 2021. At the current price of $360.81, QQQ is 54% above the pre-COVID 2020 high close of $234.64 on February 14, 2020. The trailing total returns for QQQ over longer periods are very high. The 3- and 5-year annualized total returns are 26.76% per year and 26.59% per year, respectively.\nTrailing total returns for QQQ (Source: Morningstar)\nQQQ, a growth-oriented index, has benefitted from several major trends over the past decade. First,growth stocks have absolutely dominated value stocks. Second, technological innovation is changing the world in dramatic ways, making the prospects for many names in the QQQ look like long-term winners. Third,low and falling interest rates and bond yields over the past decade (and longer) have provided a major tailwind for growth stocks.\nThe value of a stock represents the net present value (NPV) of projected future earnings. The NPV is sensitive to the discount rate applied to those future earnings and the discount rate is determined by interest rates (low interest rates equate to low discount rates and vice versa). The further earnings are expected to occur in the future, the more sensitive a stock’s valuation is to interest rates. In effect, growth stocks have longer duration than value stocks, so growth stocks are more sensitive to interest rates. Higher P/E ratios can be justified when interest rates are low, for the same reasons.\nThe market is currently struggling with expectations on rates and bond yields. The Fed is signaling increasing concern about inflation, which is driving up bond yields. QQQ has been declining, as expected.\nI closely monitor the prices of options on indexes in managing my portfolio. The price of an option represents the market’s consensus estimate for the probability that the price of the underlying index (QQQ, in this case) will rise above (call option) or fall below (put option) a specific level (the strike price) between now and when the option expires. By analyzing calls and puts at a range of strike prices and a common expiration date, it is possible to calculate a probabilistic outlook for the underlying security that reconciles the options prices. This is the market-implied outlook. For those who are unfamiliar with the concept, I have written an overview post, including links to the relevant financial literature.\nWhen I calculated the 12-month market-implied outlook in January 2021, the results indicated a bullish view for QQQ. The probabilities of positive returns were consistently higher than for negative returns. In early March 2021, I compared the market-implied outlooks for major equity asset classes, and I got a bullish outlook for QQQ, but I also found that the S&P 500 offered a more favorable risk-return outlook to early 2022 than QQQ.\nFor the YTD, QQQ has a total return of 18.46% and SPY has returned 19.56%. The market-implied outlooks for developed international stocks (calculated using options on EFA), emerging markets (using options on EEM), and small cap stocks (using options on IWM) were less favorable than those for QQQ and SPY. EFA, EEM, and IWM have YTD total returns of 11.5%,-0.65%, and 16.24%, respectively.\nWith the increasing concerns about interest rates, and the QQQ having lost some momentum since reaching its all-time high, I have recalculated the market-implied outlook for QQQ.\nMarket-Implied Outlook for QQQ\nI have analyzed call and put options on QQQ at a range of strike prices, all expiring on January 21, 2022, to generate the market-implied outlook for the next 3.76 months (from now until that expiration date). I have also analyzed options expiring on March 18, 2022 to generate the market-implied outlook for the next 5.6 months. I have chosen these two expiration dates to give a view into early 2022 and to get a sense of whether the outlook gets more or less favorable as we move through the first quarter.\nA key metric for the market-implied outlook is to see how closely the theoretical prices of options, as calculated from the market-implied outlook, matches the market prices of those options. The goal in calculating the market-implied outlook is to minimize the differences. For both expiration dates, the average difference between the theoretical and market prices of the options is within 0.2% of the market prices of the options. This is a very good agreement and adds confidence in the market-implied outlook.\nThe standard presentation of the market-implied outlook is in the form of a probability distribution of price return, with probability on the vertical axis and price return on the horizontal.\nMarket-implied price return probabilities for QQQ for the 3.76-month period from now until January 21, 2022 (Source: Author’s calculations using options quotes from ETrade)\nThe market-implied outlook from now until January 21, 2022 is consistent with what we expect to see for a stock index. The probability distribution is negatively skewed, meaning that the probability of large negative returns is higher than for large positive returns of the same magnitude. There is an 8.5% chance of having a return of -20% or worse between now and January 21, 2022, as compared to a 1.7% chance of having a return of +20% or greater.\nThere is a 61.5% probability of having a price return that is greater than zero, however. The peak probability corresponds to a price return of +6.25% over the next 3.76 months. The estimated volatility of QQQ for the 3.76-month period is 13.6%, or 24.3% annualized.\nThis is a bullish outlook from now until January 21, 2022. With a peak-probability return of +6.25% and volatility (standard deviation of return) of 13.6%, this is a decent risk-return tradeoff.\nMarket-implied price return probabilities for QQQ for the 5.6-month period from now until March 18, 2022 (Source: Author’s calculations using options quotes from ETrade)\nLooking out to March 18, 2022, calculating the market-implied outlook using options that expire on that date, the view is consistent with the results to January 21, 2022. The distribution is negatively skewed, with annualized volatility of 24.8% (16.9% for the 5.6-month period). The peak probability corresponds to a price return of +8.7%. There is an estimated 60% probability of having a price return that is greater than zero for this period.\nSummary\nThe market-implied outlook for QQQ to early 2022 offers a favorable risk-return proposition. The maximum-probability price return from now until January 21, 2022 is +6.25%, with annualized volatility of 24.3%. For context, these results may be compared to the equivalent values I calculated for the S&P 500 (SPY) on September 12th: maximum-probability price return of +5% and annualized volatility of 20%. These values were calculated using options expiring on January 21, 2022. The options prices suggest that QQQ offers a higher projected return at higher risk, as expected. The market-implied outlook for QQQ to March has a maximum probability corresponding to a price return of +8.7%, with 24.8% annualized volatility.\nWhile the outlook for QQQ derived from options prices is bullish, it is important to remember the difference between a probabilistic outlook (which predicts the probabilities of a wide range of outcomes) and a point outlook (one which predicts a single value). While the market-implied outlook for QQQ is favorable, there is a projected 40% chance of losing money between now and early 2022.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":862704615,"gmtCreate":1632909318651,"gmtModify":1632909318847,"author":{"id":"3575785607031015","authorId":"3575785607031015","name":"keatwong","avatar":"https://static.tigerbbs.com/b440c303dc2a35e0a2c45f896a7d779f","vip":1,"crmLevel":1,"crmLevelSwitch":0},"htmlText":"[微笑]&nbsp;","listText":"[微笑]&nbsp;","text":"[微笑]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/862704615","repostId":1150995392,"repostType":4,"repost":{"id":"1150995392","pubTimestamp":1632909198,"share":"https://www.laohu8.com/m/news/1150995392?lang=&edition=full","pubTime":"2021-09-29 17:53","market":"us","language":"en","title":"QQQ: Market-Implied Outlook To Early 2022","url":"https://stock-news.laohu8.com/highlight/detail?id=1150995392","media":"Seeking Alpha","summary":"Summary\n\nOptions prices can be used to calculate the consensus outlook for QQQ, referred to as the m","content":"<p><b>Summary</b></p>\n<ul>\n <li>Options prices can be used to calculate the consensus outlook for QQQ, referred to as the market-implied outlook.</li>\n <li>The market-implied outlook for QQQ was bullish at the start of 2021, but suggested that SPY offered a superior risk-return tradeoff.</li>\n <li>The updated market-implied outlook for QQQ into early 2022 is bullish, with moderate volatility.</li>\n <li>These results suggest the current elevated volatility, largely driven by fear of rising interest rates, is likely to be temporary.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/432ed786a1c4dfdf56017543577ebc72\" tg-width=\"1536\" tg-height=\"1026\" width=\"100%\" height=\"auto\"><span>Massimo Giachetti/iStock Editorial via Getty Images</span></p>\n<p>The Invesco QQQ ETF&nbsp;(NASDAQ:QQQ)&nbsp;is in an interesting place. The all-time high close for QQQ was $382.11 on September 7, 2021. At the current price of $360.81, QQQ is 54% above the pre-COVID 2020 high close of $234.64 on February 14, 2020. The trailing total returns for QQQ over longer periods are very high. The 3- and 5-year annualized total returns are 26.76% per year and 26.59% per year, respectively.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/5866620d906e1fdbbbb095b7d343a3fa\" tg-width=\"1280\" tg-height=\"139\" width=\"100%\" height=\"auto\"><span>Trailing total returns for QQQ (Source: Morningstar)</span></p>\n<p>QQQ, a growth-oriented index, has benefitted from several major trends over the past decade. First,growth stocks have absolutely dominated value stocks. Second, technological innovation is changing the world in dramatic ways, making the prospects for many names in the QQQ look like long-term winners. Third,low and falling interest rates and bond yields&nbsp;over the past decade (and longer) have provided a major tailwind for growth stocks.</p>\n<p>The value of a stock represents the net present value (NPV) of projected future earnings. The NPV is sensitive to the discount rate applied to those future earnings and the discount rate is determined by interest rates (low interest rates equate to low discount rates and vice versa). The further earnings are expected to occur in the future, the more sensitive a stock’s valuation is to interest rates. In effect, growth stocks have longer duration than value stocks, so growth stocks are more sensitive to interest rates. Higher P/E ratios can be justified when interest rates are low, for the same reasons.</p>\n<p>The market is currently struggling with expectations on rates and bond yields. The Fed is signaling increasing concern about inflation, which is driving up bond yields. QQQ has been declining, as expected.</p>\n<p>I closely monitor the prices of options on indexes in managing my portfolio. The price of an option represents the market’s consensus estimate for the probability that the price of the underlying index (QQQ, in this case) will rise above (call option) or fall below (put option) a specific level (the strike price) between now and when the option expires. By analyzing calls and puts at a range of strike prices and a common expiration date, it is possible to calculate a probabilistic outlook for the underlying security that reconciles the options prices. This is the market-implied outlook. For those who are unfamiliar with the concept, I have written an&nbsp;overview post, including links to the relevant financial literature.</p>\n<p>When I calculated the&nbsp;12-month market-implied outlook in January 2021, the results indicated a bullish view for QQQ. The probabilities of positive returns were consistently higher than for negative returns. In early March 2021, I&nbsp;compared the market-implied outlooks&nbsp;for major equity asset classes, and I got a bullish outlook for QQQ, but I also found that the S&amp;P 500 offered a more favorable risk-return outlook to early 2022 than QQQ.</p>\n<p>For the YTD, QQQ has a total return of&nbsp;18.46%&nbsp;and SPY has returned&nbsp;19.56%. The market-implied outlooks for developed international stocks (calculated using options on EFA), emerging markets (using options on EEM), and small cap stocks (using options on IWM) were less favorable than those for QQQ and SPY. EFA, EEM, and IWM have YTD total returns of&nbsp;11.5%,-0.65%, and&nbsp;16.24%, respectively.</p>\n<p>With the increasing concerns about interest rates, and the QQQ having lost some momentum since reaching its all-time high, I have recalculated the market-implied outlook for QQQ.</p>\n<p><b>Market-Implied Outlook for QQQ</b></p>\n<p>I have analyzed call and put options on QQQ at a range of strike prices, all expiring on January 21, 2022, to generate the market-implied outlook for the next 3.76 months (from now until that expiration date). I have also analyzed options expiring on March 18, 2022 to generate the market-implied outlook for the next 5.6 months. I have chosen these two expiration dates to give a view into early 2022 and to get a sense of whether the outlook gets more or less favorable as we move through the first quarter.</p>\n<p>A key metric for the market-implied outlook is to see how closely the theoretical prices of options, as calculated from the market-implied outlook, matches the market prices of those options. The goal in calculating the market-implied outlook is to minimize the differences. For both expiration dates, the average difference between the theoretical and market prices of the options is within 0.2% of the market prices of the options. This is a very good agreement and adds confidence in the market-implied outlook.</p>\n<p>The standard presentation of the market-implied outlook is in the form of a probability distribution of price return, with probability on the vertical axis and price return on the horizontal.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/7973b66311844822a875f58a6f3230bd\" tg-width=\"618\" tg-height=\"356\" width=\"100%\" height=\"auto\"><span>Market-implied price return probabilities for QQQ for the 3.76-month period from now until January 21, 2022 (Source: Author’s calculations using options quotes from ETrade)</span></p>\n<p>The market-implied outlook from now until January 21, 2022 is consistent with what we expect to see for a stock index. The probability distribution is negatively skewed, meaning that the probability of large negative returns is higher than for large positive returns of the same magnitude. There is an 8.5% chance of having a return of -20% or worse between now and January 21, 2022, as compared to a 1.7% chance of having a return of +20% or greater.</p>\n<p>There is a 61.5% probability of having a price return that is greater than zero, however. The peak probability corresponds to a price return of +6.25% over the next 3.76 months. The estimated volatility of QQQ for the 3.76-month period is 13.6%, or 24.3% annualized.</p>\n<p>This is a bullish outlook from now until January 21, 2022. With a peak-probability return of +6.25% and volatility (standard deviation of return) of 13.6%, this is a decent risk-return tradeoff.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/303255af18c88f690ba822dc8b72f81b\" tg-width=\"618\" tg-height=\"356\" width=\"100%\" height=\"auto\"><span>Market-implied price return probabilities for QQQ for the 5.6-month period from now until March 18, 2022 (Source: Author’s calculations using options quotes from ETrade)</span></p>\n<p>Looking out to March 18, 2022, calculating the market-implied outlook using options that expire on that date, the view is consistent with the results to January 21, 2022. The distribution is negatively skewed, with annualized volatility of 24.8% (16.9% for the 5.6-month period). The peak probability corresponds to a price return of +8.7%. There is an estimated 60% probability of having a price return that is greater than zero for this period.</p>\n<p><b>Summary</b></p>\n<p>The market-implied outlook for QQQ to early 2022 offers a favorable risk-return proposition. The maximum-probability price return from now until January 21, 2022 is +6.25%, with annualized volatility of 24.3%. For context, these results may be compared to the equivalent values I calculated for the&nbsp;S&amp;P 500 (SPY) on September 12th: maximum-probability price return of +5% and annualized volatility of 20%. These values were calculated using options expiring on January 21, 2022. The options prices suggest that QQQ offers a higher projected return at higher risk, as expected. The market-implied outlook for QQQ to March has a maximum probability corresponding to a price return of +8.7%, with 24.8% annualized volatility.</p>\n<p>While the outlook for QQQ derived from options prices is bullish, it is important to remember the difference between a probabilistic outlook (which predicts the probabilities of a wide range of outcomes) and a point outlook (one which predicts a single value). While the market-implied outlook for QQQ is favorable, there is a projected 40% chance of losing money between now and early 2022.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>QQQ: Market-Implied Outlook To Early 2022</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nQQQ: Market-Implied Outlook To Early 2022\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-09-29 17:53 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4457585-qqq-market-implied-outlook-to-early-2022><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nOptions prices can be used to calculate the consensus outlook for QQQ, referred to as the market-implied outlook.\nThe market-implied outlook for QQQ was bullish at the start of 2021, but ...</p>\n\n<a href=\"https://seekingalpha.com/article/4457585-qqq-market-implied-outlook-to-early-2022\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"QQQ":"纳指100ETF"},"source_url":"https://seekingalpha.com/article/4457585-qqq-market-implied-outlook-to-early-2022","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1150995392","content_text":"Summary\n\nOptions prices can be used to calculate the consensus outlook for QQQ, referred to as the market-implied outlook.\nThe market-implied outlook for QQQ was bullish at the start of 2021, but suggested that SPY offered a superior risk-return tradeoff.\nThe updated market-implied outlook for QQQ into early 2022 is bullish, with moderate volatility.\nThese results suggest the current elevated volatility, largely driven by fear of rising interest rates, is likely to be temporary.\n\nMassimo Giachetti/iStock Editorial via Getty Images\nThe Invesco QQQ ETF (NASDAQ:QQQ) is in an interesting place. The all-time high close for QQQ was $382.11 on September 7, 2021. At the current price of $360.81, QQQ is 54% above the pre-COVID 2020 high close of $234.64 on February 14, 2020. The trailing total returns for QQQ over longer periods are very high. The 3- and 5-year annualized total returns are 26.76% per year and 26.59% per year, respectively.\nTrailing total returns for QQQ (Source: Morningstar)\nQQQ, a growth-oriented index, has benefitted from several major trends over the past decade. First,growth stocks have absolutely dominated value stocks. Second, technological innovation is changing the world in dramatic ways, making the prospects for many names in the QQQ look like long-term winners. Third,low and falling interest rates and bond yields over the past decade (and longer) have provided a major tailwind for growth stocks.\nThe value of a stock represents the net present value (NPV) of projected future earnings. The NPV is sensitive to the discount rate applied to those future earnings and the discount rate is determined by interest rates (low interest rates equate to low discount rates and vice versa). The further earnings are expected to occur in the future, the more sensitive a stock’s valuation is to interest rates. In effect, growth stocks have longer duration than value stocks, so growth stocks are more sensitive to interest rates. Higher P/E ratios can be justified when interest rates are low, for the same reasons.\nThe market is currently struggling with expectations on rates and bond yields. The Fed is signaling increasing concern about inflation, which is driving up bond yields. QQQ has been declining, as expected.\nI closely monitor the prices of options on indexes in managing my portfolio. The price of an option represents the market’s consensus estimate for the probability that the price of the underlying index (QQQ, in this case) will rise above (call option) or fall below (put option) a specific level (the strike price) between now and when the option expires. By analyzing calls and puts at a range of strike prices and a common expiration date, it is possible to calculate a probabilistic outlook for the underlying security that reconciles the options prices. This is the market-implied outlook. For those who are unfamiliar with the concept, I have written an overview post, including links to the relevant financial literature.\nWhen I calculated the 12-month market-implied outlook in January 2021, the results indicated a bullish view for QQQ. The probabilities of positive returns were consistently higher than for negative returns. In early March 2021, I compared the market-implied outlooks for major equity asset classes, and I got a bullish outlook for QQQ, but I also found that the S&P 500 offered a more favorable risk-return outlook to early 2022 than QQQ.\nFor the YTD, QQQ has a total return of 18.46% and SPY has returned 19.56%. The market-implied outlooks for developed international stocks (calculated using options on EFA), emerging markets (using options on EEM), and small cap stocks (using options on IWM) were less favorable than those for QQQ and SPY. EFA, EEM, and IWM have YTD total returns of 11.5%,-0.65%, and 16.24%, respectively.\nWith the increasing concerns about interest rates, and the QQQ having lost some momentum since reaching its all-time high, I have recalculated the market-implied outlook for QQQ.\nMarket-Implied Outlook for QQQ\nI have analyzed call and put options on QQQ at a range of strike prices, all expiring on January 21, 2022, to generate the market-implied outlook for the next 3.76 months (from now until that expiration date). I have also analyzed options expiring on March 18, 2022 to generate the market-implied outlook for the next 5.6 months. I have chosen these two expiration dates to give a view into early 2022 and to get a sense of whether the outlook gets more or less favorable as we move through the first quarter.\nA key metric for the market-implied outlook is to see how closely the theoretical prices of options, as calculated from the market-implied outlook, matches the market prices of those options. The goal in calculating the market-implied outlook is to minimize the differences. For both expiration dates, the average difference between the theoretical and market prices of the options is within 0.2% of the market prices of the options. This is a very good agreement and adds confidence in the market-implied outlook.\nThe standard presentation of the market-implied outlook is in the form of a probability distribution of price return, with probability on the vertical axis and price return on the horizontal.\nMarket-implied price return probabilities for QQQ for the 3.76-month period from now until January 21, 2022 (Source: Author’s calculations using options quotes from ETrade)\nThe market-implied outlook from now until January 21, 2022 is consistent with what we expect to see for a stock index. The probability distribution is negatively skewed, meaning that the probability of large negative returns is higher than for large positive returns of the same magnitude. There is an 8.5% chance of having a return of -20% or worse between now and January 21, 2022, as compared to a 1.7% chance of having a return of +20% or greater.\nThere is a 61.5% probability of having a price return that is greater than zero, however. The peak probability corresponds to a price return of +6.25% over the next 3.76 months. The estimated volatility of QQQ for the 3.76-month period is 13.6%, or 24.3% annualized.\nThis is a bullish outlook from now until January 21, 2022. With a peak-probability return of +6.25% and volatility (standard deviation of return) of 13.6%, this is a decent risk-return tradeoff.\nMarket-implied price return probabilities for QQQ for the 5.6-month period from now until March 18, 2022 (Source: Author’s calculations using options quotes from ETrade)\nLooking out to March 18, 2022, calculating the market-implied outlook using options that expire on that date, the view is consistent with the results to January 21, 2022. The distribution is negatively skewed, with annualized volatility of 24.8% (16.9% for the 5.6-month period). The peak probability corresponds to a price return of +8.7%. There is an estimated 60% probability of having a price return that is greater than zero for this period.\nSummary\nThe market-implied outlook for QQQ to early 2022 offers a favorable risk-return proposition. The maximum-probability price return from now until January 21, 2022 is +6.25%, with annualized volatility of 24.3%. For context, these results may be compared to the equivalent values I calculated for the S&P 500 (SPY) on September 12th: maximum-probability price return of +5% and annualized volatility of 20%. These values were calculated using options expiring on January 21, 2022. The options prices suggest that QQQ offers a higher projected return at higher risk, as expected. The market-implied outlook for QQQ to March has a maximum probability corresponding to a price return of +8.7%, with 24.8% annualized volatility.\nWhile the outlook for QQQ derived from options prices is bullish, it is important to remember the difference between a probabilistic outlook (which predicts the probabilities of a wide range of outcomes) and a point outlook (one which predicts a single value). While the market-implied outlook for QQQ is favorable, there is a projected 40% chance of losing money between now and early 2022.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":55,"commentSize":1,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.25.1","shortVersion":"4.25.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1150995392"}