If Volatility Keeps Spiking, Find Solace in These Stocks

Every 18 months or so throughout this bull market, stocks have experienced a correction of around 10%. The last time we saw that kind of pullback was at the end of 2015. It lasted through mid-February of 2016, and totaled 14.3% in the S&P 500.

That’s pretty big … and the damage was even worse in other indexes. The more volatile small caps plunged 28%, while the VIX surged 47%.

Now … exactly 18 months later … we’re seeing renewed market turmoil. The Dow got pasted twice in recent days, losing 274 points last Thursday alone. So in light of that volatility, what’s coming next? And if the volatility continues, how can you protect yourself?

To help answer those questions, I started by looking at the VIX chart to see how it’s behaving this time around compared to past instances of turmoil …

You can see that the recent spike doesn’t register much in the long term. And even with its recent losses, the S&P 500 is still only 2.4% off its August 8 high. So that’s encouraging. But considering we’re at that 18-month point since the last correction, I don’t want to dismiss the move entirely.

So next, I analyzed which highly rated stocks held up the best in other recent periods of volatility. Those recent spikes climaxed on August 11, June 29, May 18, and April 17 – all in 2017, and all around that line at 17 in the chart.

More specifically, I looked at our universe of liquid, BUY and HOLD stocks. Then I analyzed which of them rose during each of the periods leading up to the volatility peaks in those previous spikes. Finally, I sorted the results by highest returns. Here’s the resulting list:

You can see that these companies span several different industries, and that their returns ranged anywhere from around 1% on up to 11%. There’s no guarantee history will repeat itself. But now you have the “best of the best stocks” during recent market drawdowns. They’re stocks that are either considered safer, or that have catalysts even volatility spikes can’t derail.

If we continue to see volatility like we have in the past several days, keep these names in mind when you’re thinking “What do I do now”? They may be worth buying and holding regardless of any turmoil.

Of course, it goes without saying that if we have a meltdown of 2008 proportions and/or a serious recession, nothing will help other than the safety of U.S. Treasuries. But nothing in our impartial Weiss Ratings data and indicators, or my own analysis, suggests that’s what we’re facing.

Best,

Mandeep

Small Cap Edition, By Mandeep Rai, Senior Analyst Mandeep Rai has more than 15 years of investing experience, working as both a stock and credit analyst. At Weiss Ratings, he researches and evaluates financial and economic themes, and makes decisions on when to buy or sell specific shares for the Top Stocks Under $10 portfolio.