Major Moves Mean Major Gains for Large Caps

It might be time to buy the dip on NVDA

Senior Quantitative Analyst
Apr 24, 2024 at 8:00 AM
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NVIDIA Corp (NASDAQ:NVDA) stock has more than quintupled in value since the beginning of 2023. Last Friday, however, the chipmaker got swept up in a selloff of artificial intelligence (AI) stocks, falling 10% in a single day, or about $212 billion in market capitalization. That’s bigger than companies such as Adobe (ADBE), Walt Disney (DIS), and McDonald’s (MCD).

This week, I’m looking at some of the biggest one-day changes 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 losses in market capitalization like NVDA just experienced. I went back to 2000 and only considered stocks still trading, and looked for those that lost at least $50 billion in a single day. Since Microsoft (MSFT) and Apple (AAPL) move $50 billion on a 2% change in the stock price, I added the criteria that the stock had to lose at least 10%.

Stocks shedding huge value in a single day tended to perform well going forward, especially three and six months later. On average, it was better to buy the stock after these huge declines than to buy the S&P 500 Index (SPX). The average return for the stocks was better than the SPX at every timeframe I looked at, from one week to one year later.

The last row of the table (% Beat SPX) is the percentage of time you would have been better off buying the stock compared to the SPX. Roughly 54% of the time, the stock beat the index three months later, but six and 12 months later, the stock beat it less than half the time (42% and 46%, respectively).

IOTW Market Cap Losses

Here’s the performance if you had bought the SPX instead of buying the stock. Over the next three months, instead of gaining 13% on average, you would have gained 6.25%.

IOTW Corresponding SPX

Next, I summarized stock returns after they gained at least $50 billion in market capitalization on a 10% move or more. For stocks making huge single-day gains, it has been better to wait a week before purchasing the stock. But after that, it’s been better to own the stock than the SPX.

On average, the stock lost 1% over the first week after the huge gain, but then gained 10.6% on average six months after the huge move higher. A year after the increase in market cap, the stock averaged a return of 14.7% vs. 8.6% for the S&P 500. Although the average return is better, the stock beat the SPX less than half the time (48%) 12 months later.

Comparing stock returns after a huge loss in market cap to a huge gain, in the short term especially, it has historically been a better choice to buy the stock after a big decline.

IOTW Market Cap Losses


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