Indicator of the Week: What Happens After Big-Caps Make Big One-Day Moves?

Amazon.com, Inc. (AMZN) and Google Inc (GOOGL) each exploded after earnings -- but what can we expect going forward?

Senior Quantitative Analyst
Jul 29, 2015 at 7:12 AM
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Over the last couple of weeks, there have been two companies that added at least $20 billion to their market cap in one day. I'm talking about Amazon.com, Inc. (NASDAQ:AMZN) and Google Inc (NASDAQ:GOOGL). I wondered if this created any sort of opportunity going forward. When this happens, is there a tendency to pull back some or continue higher? This week, I'll look back at similar instances when large-cap stocks made huge one-day moves, and see how they did going forward. 


Big-Caps Make Big Gains: For this this study, I went back to the beginning of 2010 and found stocks that returned at least 8% on a single day, and added at least $10 billion in market cap. Before Amazon and Google recently accomplished this, there had been 31 other instances. Below is a table summarizing how they performed after the big daily gain. The stocks tended to struggle in the short term.  After a month, the stocks had lost an average of 2%, showing positive returns less than half the time. Also, these stocks beat the S&P 500 Index (SPX) less than half the time through all time frames. Looking at these numbers, it wouldn’t be surprising if Amazon and Google struggled a bit over the next few weeks. 


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Amazon & Google Past Instances: Here are the past instances of these two specific stocks gaining 8% in a day and adding at least $10 billion in market cap. First, the table below shows four prior occurrences for Amazon. I included corresponding SPX returns to see what the broad market was doing at the same time. As you can see, the three-month returns for Amazon are quite good after each of these occurrences. The last time it happened, just last April, Amazon gained almost 19% over the next three months, despite the S&P 500 actually declining. 

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Similar to the table above, here are the results for Google in the past. The scenario described above has happened three other times for Google, with the results going forward not being as bullish as for Amazon. The last time Google gained 8% and $10 billion in market cap was October 2013. Google did very well in the next three months, gaining 15% vs. the S&P 500 gain of 5.7%. After the July 2011 occurrence, however, Google and the SPX saw substantial three-month declines, and following the October 2010 move, GOOGL underperformed the broader market. 


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