Facebook, EA, Biotechs Among Best Stocks to Buy After VIX Spikes

The SPY has been higher one week after the last six VIX spikes

Andrea Kramer
Aug 11, 2017 at 1:23 PM
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As traders dumped stocks in favor of "safe haven" assets like gold, the CBOE Volatility Index (VIX) -- or the stock market's "fear gauge" -- skyrocketed more than 40% yesterday, and is pacing for its biggest weekly gain since late 2015. Chest-thumping out of both the U.S. and North Korea translated into the VIX's biggest one-day jump since May, and its second-largest surge since the Brexit brouhaha of June 2016. Against this backdrop, we decided to take a look at how the stock market performs -- and the best individual stocks to own -- after these steep VIX jumps.

SPY Performance After VIX Spikes of 40% or More

Since 2010, there have been seven one-day CBOE Volatility Index jumps of 40% or more. The last time it happened prior to yesterday, back on May 17, the stock market rebounded right away, with the SPDR S&P 500 ETF Trust (SPY) higher at the one-day, one-week, two-week, and one-month markers. In fact, the SPY has been higher one week after the last six huge VIX days, and only after the August 2015 plunge was the index lower at the two-week and one-month points, according to data from Schaeffer's Senior Quantitative Analyst Rocky White.

SPY after big VIX spikes

Best Stocks to Own After Huge VIX Days

Below are the best stocks to own one and two weeks after a one-day VIX surge of at least 40%, looking at data since 2010, with every stock higher 100% of the time at both marks.

best stocks one week after vix spike

best stocks to own two weeks after vix spike

2 Biotech Stocks to Watch

Two biotech stocks stand out on both lists: Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) and Incyte Corporation (NASDAQ:INCY). VRTX stock has averaged the best return during both time frames, up 15.3% and 15.4% one and two weeks after a VIX surge, respectively. Today, Vertex Pharmaceuticals stock is up 1.6% to trade at $150.92, and has more than doubled year-to-date, touching a record high of $167.85 in late July, shortly after the company released encouraging data on its cystic fibrosis treatment. A 15.3% surge from current levels would place VRTX shares around $174, back at all-time highs.

INCY stock, meanwhile, has been runner-up at both post-VIX markers, rallying an average of 12.6% and 10.3%, respectively, one week and two weeks after the last six VIX pops. Today, Incyte stock is up 1.4% at $123.87, and has spent the past few months struggling to surmount the $140 area -- where INCY shares traded before an FDA-inspired bear gap in April. A 12.6% rally for Incyte stock would put the shares just under the $140 marker again.

FB, EA Stocks Could Hit Record Highs, If Past Is Prologue

Outside of biotech, Facebook Inc (NASDAQ:FB) stands out. The social media stock has been around for only five of the previous six VIX pops, but was higher two weeks later 100% of the time, averaging a gain of 4.6%. Facebook stock today is up 0.5% at $168.22, and has rallied more than 46% in 2017, peaking at a record high of $175.49 on July 27. Another 4.6% rally over the next two weeks would place FB stock around $176 -- in uncharted territory.

Finally, video-game maker Electronic Arts Inc. (NASDAQ:EA) caught our eye, making an appearance on both lists below. EA stock has averaged a one-week gain of 5.3% after a major VIX rally, and a gain of 6.4% two weeks out. Electronic Arts shares were last seen 1.4% higher at $115.59, and touched an all-time high of $120.25 on July 27, following a well-received earnings report. Another 6.4% rally over the next couple of weeks would also put EA stock back at record highs.

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