How to Play Large Market Cap Gains

Also, would it have been better to buy the SPX or play the individual stock?

Senior Quantitative Analyst
May 31, 2023 at 8:00 AM
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Mega-cap stock, Nvidia (NVDA), reported earnings last week and soared nearly 25% on Thursday, May 25. The company’s market capitalization increased by $184 billion, moving from $754 billion to $938 billion in a single day, and crossed the $1 trillion threshold Tuesday morning. This is more than the market capitalization of companies such as Nike (NKE), Netflix (NFLX), and Walt Disney (DIS).

This week I’m looking at some of the biggest one-day gains in market capitalization. I’ll show how the stocks performed going forward and if it would have been better to buy the stock or just buy the general market.

Mega Caps Making Mega Moves

The table below shows the performance of stocks after huge gains in market capitalization. I looked for stocks that gained at least $50 billion in a single day. Since Apple (AAPL) moves $50 billion on a 2% move, I also created the criteria that the stock had to gain at least 10%.

Stocks making huge gains like this did not perform well going forward. The shorter-term returns are fine, with the stocks averaging a 0.87% return over the next month. When you get to three months, however, the stocks averaged a loss of 0.59%, with less than half of the returns positive. Six months after the gains the stocks averaged a gain of 0.63%, but half of the returns lost at least 5% (based on the median return). A year after these large increases in value, the stocks lost 1.36% on average, with half of the stocks positive and half beating the S&P 500 Index (SPX).

Stocks After Largest Gains in Market Cap

Alternatively, here’s the performance if you had bought the SPX instead of buying the stock. Over the next year, instead of losing 1.36% on average, you would have gained 5.92% on average.

Corresponding SPX Returns

In case you’re curious, below is the group of stocks that gained $50 billion in market capitalization in one day on a more than 10% move in the stock price. Only Amazon.com’s (AMZN) $191 billion market cap gain in February of 2022 beat the recent gain for NVDA. AMZN fell 35% over the next year.

50b Single_Session Gains

 

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