Midterm Elections Highlight Need for Robust Cybersecurity Measures

October is Cybersecurity Awareness Month and with the 2022 midterm elections just weeks away, now is an appropriate time for investors to examine cybersecurity stocks and exchange traded funds.

For those market participants that want exposure to cybersecurity stocks without the commitment of individual names or dedicated ETFs, the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) are credible alternatives because both tech-heavy ETFs provide exposure to multiple cybersecurity stocks.

Like so many growth names this year, cybersecurity stocks are being taken to task, but the long-term outlook for the industry is as compelling as ever. Part of that thesis revolves around government spending and elections are one example of the need for improved cybersecurity in the public sector.

“While the potential erosion of faith in government institutions is a credit risk for the federal government, the decentralized nature of elections in the US impedes wide-scale national interference. But local governments are exposed to credit risk through the potential shift of resources from core services to strengthen election security. Enhanced federal and state funding and support would help mitigate these risks,” according to Moody’s Investors Service.

The research firm notes national security authorities are already looking into and preparing for potential cyber threats in the upcoming midterm elections. It remains to be seen, but those preventative efforts could be beneficial to some of the cybersecurity stocks residing on the QQQ and QQQM rosters.

“Military, intelligence, and law enforcement officials are preparing for a potential wave of cyberattacks and influence operations aimed at undermining confidence in the U.S. election infrastructure. Threats originate from foreign and domestic actors and include tampering with voting systems, misinformation, disinformation, and physical violence,” adds Moody’s.

What’s clear is that state and local governments need to be aware of election cyber risk and by addressing that issue before it becomes a problem, voters’ confidence in election integrity can be improved. Of course, preventing cyber-crimes requires spending to that effect and that could be good news for some QQQ and QQQM components. Both ETFs track the Nasdaq-100 Index (NDC) so their rosters are the same.

“Federal initiatives paired with increased funding to states would help mitigate cyber-related credit risks. State and nongovernmental organization initiatives that target cybersecurity and misinformation would also help reduce election risk,” concludes Moody’s.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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