MACRO

In search of outperformers in peaks and troughs

Mahesh Sethuraman

Singapore Sales Trader

June was the second best performing month for S&P 500 since President Trump won the election in November 2016 as the S&P 500 index recorded a 6.83% monthly return, rebounding much of its losses in May (-6.48%). This draws similarities with the 2018 December drop of 9.11% and the subsequent recovery in January as the Fed tilted dovish in a bid to support and stabilize the capital market and provide some cushion as we enter into the late business cycle.

Despite the massive rally in the US indices into all time highs, close to 38% of the compositions are still struggling to trade close to their 52 weeks high and trailing against the percentage difference between current price and the highest price reached in the past 52 weeks. While that means that the remaining 62% still beat the average, one would have thought that the average percentage difference between current price and the highest price reached in the past 52 weeks will be a lot tighter especially with the S&P 500 hitting the once elusive 3,000 points during this week.

Since 2018, the relentless ascent in 2018 was met with multiple corrections with an equally ferocious rebound. On hindsight, we could probably identify 5 such periods since 2018 which the S&P 500 formed a local peak and trough, identified by the picture below with different colours identifying the various temporary peaks and troughs. As the S&P500 bounced to 3,000 points this month , we look to highlight some of the lesser known components in the S&P 500 that have been outperforming the average returns in the S&P 500 in both the down period and up-period that are identified. These are the unsung drivers in the constituents with a short history of being more resilient to market’s shock while also having the legs to outperform on market’s ascent.

Chart source : Bloomberg

The 5 coloured periods that we identified using the various peaks and troughs in the S&P 500.

Ave Return
from Peak to Trough
Ave Return
from Trough to Peak
No. of Stocks that
outperform both up/down move
-8.55%4.00%108
-5.46%11.72%129
-9.36%7.03%66
-12.38%20.25%107
-6.44%7.62%116

Source: Saxo

Here are the results.

Source : Saxo

Key inferences:

  • No stocks fit into the criteria in beating both the average return in the up and down move in all 5 periods that we identified.
  • But there are 11 stocks that had been consistently beating the average returns in 4 out of the 5 periods.
  • These names are not the bread and butter technology stocks that most of us know or had owned them at some point in our investment
  • In fact, 9 of the names below has market capitalization of below 100 billion USD market capitlisation and probably only two names in the list consistently appear in the top traded stocks/CFDs in Saxo’s universe
  • While they are certainly some serious outperformers from this list, the alpha picking could be tough and challenging to many of us which means that a typical investor could still be much better off getting into the index.
  • Nonetheless, if you had bought Apple at its peak last year, you would be down 12% relative to the S&P 500. Also, look no further than the S&P 500 constituents as the exercise also made me realise that there are certainly gems even within the matured index.
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