SQQQ Inflows Soar as Investors Bet Against Tech

Investors are reversing course on the start of the year’s bullish outlook on Nasdaq-listed companies, as lackluster earnings and layoffs dampen short-term outlooks for tech stocks.

The ProShares UltraPro Short QQQ (SQQQ), which bets against gains in the 100 largest nonfinancial firms traded on the Nasdaq, posted record monthly inflows in January, pulling in $1.9 billion, according to Bloomberg data. That surge came despite the Nasdaq notching its best January in more than 20 years.

The trend has continued this month, as the fund, which provides three times inverse exposure to the Nasdaq, recorded its best inflows in over a year on Feb. 3, luring in $850.5 million, according to ETF.com data.

While the Nasdaq has risen nearly 15% so far this year, disapointing fourth-quarter earnings from tech giants including Alphabet Inc. and more job cuts coming from Zoom Inc., eBay Inc. and more, experts are seeing a slowdown on the horizon.

“I think it’s tired now,” Mark Newman, CEO of Constrained Capital, said in an interview with ETF.com, referring to the performance of the tech-heavy index. “The beginning of this year was the reversion of last year, especially the massive acceleration lower in December.”

Meta Platforms Inc., Apple Inc., Amazon.com Inc. and Alphabet, four of the largest U.S.-based tech firms, in aggregate missed earnings estimates by 8%, according to Bank of America data. Over 95,000 global tech-sector employees have been terminated since the start of 2023, according to MarketWatch.

Other possible headwinds to the Nasdaq’s performance may include geopolitical factors, Bryan Armour, director of passive strategies research for North America at Morningstar Research Services, wrote in a note to ETF.com.

“Traders may be targeting SQQQ right now because of the myriad headwinds facing the market, like the Russia/Ukraine war, the Chinese spy balloon, and the threat of inflation and high interest rates that wiped out QQQ in 2022,” Armour said.

“There is substantially more open interest in SQQQ call options than puts right now, which can be an indication of retail interest, similar to what we saw in the meme stock craze in early 2021.”

Armour cautioned that “gambling” on the leveraged ETF is “obviously not a good long-term strategy for investors.”

Contact Shubham Saharan at [email protected]