Low-volatility stocks stun the Street with new highs

The list of 52-week highs among U.S. stocks has been skinny lately because of the smackdown suffered in December.

Jason Goepfert of SentimenTrader.com notes that the rally has been flashy but not strong enough to carry very many securities to new highs.

One group that has managed a new peak, Goepfert observes, is the “low volatility” component of the S&P 500, represented by the Invesco S&P 500 Low Volatility ETF (SPLV) in the chart below. (See the purple line.)

SPLV’s top holdings include Exelon (EXC), Republic Services (RSG) and Apartment Investment & Management (AIV) — a utility, a waste manager and a REIT.

Stocks like these did what they’re supposed to do, which was suffer less damage than the broader markets did last December. The low-volatility ETF saw a decline of less than 5%. They have since roared back and have exceeded their prior high.

The high-volatility stocks within the S&P 500, represented by the Invesco S&P 500 High Beta ETF (SPHB), also did what they’re accustomed to. As you can see by the black line in the chart above, high-beta stocks saw a nearly 30% decline into December.

Top holdings of SPHB include Netflix (NFLX), Applied Materials (AMAT) and Autodesk (ADSK) — media, chips and software.

High-beta stocks’ recent 25% rally still leaves the ETF 8.5% short of prior highs.

This has set up an interesting divergence between the two, reports Goepfert. Such divergences between high- and low-beta big caps have happened 15 times since 1990.

The most recent of note was May 10, 2016. The S&P 500 went on to decline 0.4% over the next two weeks but ultimately rose 15.1% over the next year.

The average of all instances shows a modest decline over the ensuing two weeks, and just a 2.3% gain in three months, but ultimately +7.8% in 12 months. That’s not much different than the broad market average for all such periods.

Looking at the two groups:

  • The low-beta stocks tend to fare better and more consistently over the next six months.
  • But the high-beta stocks do slightly better over the next year.

Overall, Goepfert concludes that it appears smarter to back the low-beta stocks in the next six months at least.

Now here are some important stocks hitting new highs in the past week. WEC Energy Group (WEC), Duke Realty Corp. (DRE) and Danaher (DHR) are SPLV holdings.

And Workday (WDAY) is not in the low-volatility ETF, but it is up 54.7% in my Tech Trend Trader service. Click here to take it for a test-drive today.

Best wishes,
Jon D. Markman

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One comment on “Low-volatility stocks stun the Street with new highs

  1. DaveS February 22, 2019

    “The low-volatility ETF saw a decline of less than 5%. ”

    I think you meant to write “less than 10%”, as it was very close to -10%.

    Reply