Stocks to Watch After Monday's Wild Breakout

There is a list of stocks that might outperform based on past SPX performances

Senior Quantitative Analyst
Nov 11, 2020 at 8:00 AM
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It was an interesting start to the week, after Pfizer (PFE) announced positive news regarding its COVID-19 vaccine development. The S&P 500 Index (SPX) gapped higher on Monday and was up nearly 4% on the day, before giving back some gains and settling positive by about 1.2%. I noticed, however, a lot of stocks having big down days. I found the standard deviation of stock returns for S&P 500 stocks on Monday was the largest reading going back to 2010. Therefore, while it was a positive day for the stock market, there were plenty of portfolios that probably suffered. The chart below shows how unprecedented Monday’s results were. The only comparable days were March of this year when it first became clear that coronavirus would have such a huge impact. This week, I am looking at other polarizing days to see if there’s any information to be gleaned from how the individual stocks performed.

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Large Standard Deviation Days

This table lists the days with the highest standard deviation of returns for S&P 500 stocks. I went back to 2010, but the top 20 days are all from this crazy year. Disregarding 2020 in its entirety, the day with the highest standard deviation of return was the day after Trump was elected President in November of 2016.

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Stocks After a Polarizing Day 

I decided to look at how the individual stocks performed going forward after these days where there was a lot of variance. Looking at the day with the second highest standard deviation of returns -- March 19 of this year -- I separated the stocks into three groups. Stocks that underperformed (stocks down more than the average negative for that day), stocks that outperformed (stocks up more than the average positive for the day), and those in between. I then summarized the stock returns over the next six months to see if the polarizing day was some sort of tell on what to expect going forward.

We now know that it was indeed a tell. The S&P 500 gained 38% over the next six months, so there weren’t many stocks that did poorly, but you would have been much better off focusing on stocks that outperformed on that polarizing day. The stocks that did the best on March 19 averaged a return of 54% over the next six months. Nearly 60% of those stocks outperformed the index over that timeframe. Looking at the stocks that underperformed that day, they averaged a gain of 28%, with only 30% of them beating the broad market. This particular polarizing day for stocks was a good indicator on what to expect going forward.

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I did this same exercise for the polarizing day after the 2016 election. The S&P 500 gained about 11% over the next six months after the election. Whether stocks outperformed, underperformed or did something in between, it didn’t make a difference on how they did going forward. The summarized returns are similar in each of those groups I made.

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Monday’s Outperforming Stocks

Time will tell whether Monday turns out to be prophetic. In case it does, listed below are the biggest stocks by market cap that outperformed on Monday. Bank stocks make up a substantial part of the list. Based on the polarizing day in March, these are stocks that could outperform going forward. The list is sorted by the year-to-date return.

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