QQQ stock rally may be a bull trap: what next for the Nasdaq 100 Index?

The Invesco QQQ ETF, which tracks the blue-chip Nasdaq 100 Index, has rebounded this week amid hopes that Donald Trump will wind down the war in Iran, which he reiterated in his prime-time address to the nation. 

QQQ rose to $585, up modestly from the year-to-date low of $556.

Still, there is a risk that this rebound is a dead-cat bounce as the Iran war will take longer than Trump predicts.

QQQ stock rally may be a dead-cat bounce 

This week’s stock market rally has been driven by the rising optimism that the US will end its war against Iran.

Trump has constantly said that the war will end in the next few weeks, now that it is “ahead of schedule.”

However, some analysts believe that the war has a long time to go as the US is not calling all the shots and Trump's recent messages are sending a sign that he is getting desperate, especially on the Strait of Hormuz.

In a Truth Social post on Wednesday, he reiterated that Iran’s “new president” had asked for a ceasefire, which the US asked him to open the Strait first.

Iran has rejected that it is seeking a ceasefire with the United States. Instead, officials have listed five conditions that will need to happen for the war to end.

Iran believes that it has an upper hand. It is already making more money than it used to before the war started, and 80% of its missiles are hitting targets in Israel.

Recent reports suggest that Israel is rationing its interceptors, even as Iran’s missiles to the country increase.

At the same time, Trump continues to send troops to the region, with analysts expecting him to launch strategic attacks on Thursday evening since US markets will be closed on Friday and during the weekend.

These fears explain why crude oil prices continue rising, with Brent soaring to $107 and the West Texas Intermediate (WTI) moving to $106.

Data compiled by AAA shows that the average gasoline price in the US has jumped to $4.06.

At the same time, investors are continuing to move from the QQQ ETF.

Data shows that the fund has shed over $10 billion this year, bringing its total assets to over $372 billion.

QQQ ETF inflows and outflows | Source: ETF

Nasdaq 100 Index will rebound over time 

The tech-heavy Nasdaq 100 Index and its ETFs will likely remain under pressure in the coming weeks as the war continues.

On the positive side, the index and its ETFs will ultimately rebound. For one, while the war may continue for longer, it will end in the coming months.

Such a move will likely lead to a strong stock market rebound.

Historically, the stock market tends to crash when there is a major black swan event and then rebounds when it ends.

Two good examples are the COVID-19 pandemic and Trump's reciprocal tariffs.

Additionally, American companies will be supported by the strong earnings growth.

Data compiled by FactSet shows that the average S&P 500 Index earnings growth in Q1 will be 13%, the sixth consecutive quarter of double digit earnings growth.

There are also signs that the Federal Reserve will cut interest rates this year despite the elevated inflation.

It will do that as it prioritises the labour market, which has slowed substantially in the past few months.

The stock market is also trading at a bargain today, with the price-to-earnings ratio (PE) of the S&P 500 Index moving below 20.

As such, investors will likely go bargain hunting in the coming months.