Large-Caps, Including Tech, Remain Alluring

Despite early 2025 faltering, Nasdaq-100 and S&P 500 indexes are positive YTD, reinforcing large-cap U.S. equity dominance. Morgan Stanley's Mike Wilson forecasts high-single-digit EPS growth over the next 12 months, a key driver for large-cap-heavy ETFs like QQQ and QQQM, which are proxies for the earnings-driving 'Magnificent Seven' stocks. This positive outlook is further bolstered by improving earnings revisions, increased corporate adoption of AI, and an underappreciated tailwind from a weakening U.S. dollar, which is down 11% from January highs and expected to decline further.

Analysis

Despite initial volatility in early 2025, the year-to-date positive performance of the Nasdaq-100 and S&P 500 indexes signals a reassertion of large-cap and mega-cap equity dominance. The investment thesis for this segment is underpinned by a constructive earnings outlook from Morgan Stanley, which projects high-single-digit Earnings Per Share (EPS) growth over the next 12 months. This is particularly relevant for ETFs like Invesco's QQQ and QQQM, which serve as proxies for the earnings-driving 'Magnificent Seven' stocks. Confidence is further bolstered by a significant improvement in Morgan Stanley's proprietary earnings revision model, which has recovered from a reading of -25 to -9, indicating a strong positive directional trend. Key tailwinds include accelerating corporate adoption of Artificial Intelligence, a prominent theme for the technology-heavy constituents of these funds, and the macroeconomic benefit of a weakening U.S. dollar. The dollar's 11% decline from its January highs, with a further 7% drop anticipated, is expected to support earnings for export-sensitive large-cap technology firms, even as geopolitical risks present a potential near-term headwind.

Key Decisions for Investors

• Given the forecast for robust EPS growth and multiple tailwinds, investors may consider maintaining or increasing exposure to U.S. large-cap growth stocks, potentially through ETFs like QQQ and QQQM.
• Monitor upcoming corporate earnings seasons closely to validate the projected high-single-digit growth and look for specific commentary on the impact of AI adoption on profitability.
• Investors should track the U.S. dollar's performance, as continued weakness represents a significant, underappreciated catalyst for the multinational technology companies that dominate these indexes.
• While the fundamental outlook is positive, remain aware of geopolitical risks as a potential source of short-term volatility and factor them into position sizing and risk management.