In every market environment, there are stocks with gains and those with losses. The current downturn is no exception.
I screened the S&P 500 index to spot both, using the recent period of February 19 through the close on Tuesday, April 8. Tuesday was used as the end date so that yesterday’s large bounce would not affect the results. (A spot check of the data following today’s pullback did reveal significant changes in names of the best and worst performers.)
Since the start of the downturn on February 19, 54 stocks have gained in price. Using a slightly stricter requirement for a gain of at least 1% identifies 39 stocks. The remaining stocks within the S&P 500 have declined in price, including 349 stocks with double-digit losses.
Unsurprisingly, the 25 best performers are higher-yielding, lower volatility stocks. These are the types of stocks one would expect to do well during periods of uncertainty. Their average yield is 2.3%. The average beta is 0.64 .
Beta measures a stock’s price volatility relative to the S&P 500. A beta of 1.00 implies that a stock has been as volatile as the S&P 500 over the past five years. Betas below 1.00 indicate less volatility, while betas above 1.00 indicate greater volatility.
Nine of these top 25 performers are in the health care sector. Most are health care insurance companies. They have the ability to negotiate prices and pass along higher costs to consumers. Tuesday’s announcement by the U.S. Centers for Medicare and Medicaid Services (CMS) for higher Medicare managed plan payments also gave health insurers a boost.
Utilities (five stocks) and consumer staples (four stocks) are the second- and third-most represented sectors, respectively. Regulated utilities can negotiate with state regulators to raise rates to offset higher costs. Consumer staples fall into the “must spend on” category for consumers. The best-performing stock, Dollar General Corp. (DG), also recently reported better-than-expected guidance.
Nearly half (12) of the 25 worst-performing large-cap stocks are in the information technology sector. Six are in the technology hardware, storage and peripherals industry, including Super Micro Computer Inc. (SMCI) and Hewlett Packard Enterprise Co. (HPE). The latter missed analysts’ fiscal first-quarter 2025 earnings estimates and issued disappointing guidance. Another five stocks, such as Microchip Technology Inc. (MCHP), are in the semiconductors and semiconductor equipment industry.
The remaining stocks come from a mixture of sectors, including consumer discretionary (five stocks), industrials (three stocks) and utilities (two stocks).
The 25 worst performers are high beta stocks. Their average beta is 1.57, or about 50% greater than the average S&P 500 member stocks. These stocks also have also experienced very strong earnings growth; the average 12-month trailing growth rate is 45.8%.
It is very difficult to avoid owning stocks with falling prices during a broad market downturn like we are currently experiencing. Diversifying across sectors, holding different types of stocks and holding several stocks instead of just a few increases your odds of holding at least some stocks that fare better in different types of market conditions.
Those of you who are looking for possibilities in the current market environment should avoid the temptation to merely focus on the stocks that are doing well. When market sentiment shifts, it is probable that momentum will shift away from the stocks that have recently performed the best to those that have struggled since late February. “Twelve months after all S&P 500 declines of 10% or more since 1990, the three sectors that fell the farthest during the sell-off rose an average of 43% (versus the S&P 500’s 34% climb) and beat the market 75% of the time,” CFRA Research’s Sam Stovall coincidently wrote yesterday.
Using a simple average of returns, the three worst-performing sectors through Tuesday’s close were:
- Information technology, down 26.2%
- Consumer discretionary, down 20.3%
- Energy, down 20.2%
Keep in mind that a depressed price is not enough to qualify a stock as a buy. You will still need to ensure that its valuation is reasonable and its fundamentals are strong. We strongly suggest paying attention to first-quarter earnings results for updated guidance as well. Your goal is to invest in stocks that are mispriced rather than those that have been knocked down for good reasons.
Join me and other AAII analysts on Monday, April 14, at 7:00 p.m. Central Time, for a live webinar on recent market events. We will leave plenty of time for your questions. Register here.
Optimism among individual investors about the short-term outlook for stocks increased in the latest AAII Sentiment Survey. Meanwhile, neutral sentiment and pessimism decreased.
Bullish sentiment, expectations that stock prices will rise over the next six months, increased 6.8 percentage points to 28.5%. Bullish sentiment is below its historical average of 37.5% for the 13th time in 15 weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, decreased 3.8 percentage points to 12.5%. Neutral sentiment is unusually low and is below its historical average of 31.5% for the 38th time in 40 weeks. Neutral sentiment was last lower on May 28, 2009, (11.0%) and was the 14th-lowest reading in the survey’s history.
Bearish sentiment, expectations that stock prices will fall over the next six months, decreased 3.0 percentage points to 58.9%. Bearish sentiment is unusually high and is above its historical average of 31.0% for the 19th time in 21 weeks.
The bull-bear spread (bullish minus bearish sentiment) increased 9.7 percentage points to –30.4%. The bull-bear spread is below its historical average of 6.5% for the 14th time in 16 weeks.
This week’s special question asked AAII members how they would describe the current valuation of stocks.
Here is how they responded:
- Stocks, in general, are overvalued: 29.2%
- Stocks, in general, are fairly valued: 13.0%
- Valuations are mixed, with some stocks expensive and other cheap: 36.4%
- Stocks, in general, are undervalued: 14.5%
- Not sure/no opinion: 6.9%