What’s Next For Merck Stock After A 5% Fall In A Week?

by Trefis Team
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The stock price of Merck (NYSE: MRK) reached its all-time high of around $82 in Sep 2020. It has since hovered in the range of $70-80 for the better part of the last year, before a recent sell-off in pharmaceutical stocks resulted in MRK falling to $72 levels currently. MRK stock is down over 5% in the last five trading days. Even before the recent fall, MRK stock underperformed its peers, due to rising concerns of slowing sales for some of its drugs, such as, Januvia and Janumet, along with the impact of the Covid-19 pandemic on its vaccines, including Gardasil. However, the recent decline can be attributed to rising concerns over the Biden’s administration’s plan to reduce healthcare costs, including negotiating the drug prices in its Medicare program. But will MRK stock continue its downward trajectory over the coming weeks, or is a recovery in the stock imminent?

According to the Trefis Machine Learning Engine, which identifies trends in the company’s stock price using ten years of historical data, returns for MRK stock average around 4.1% in the next one-month (twenty-one trading days) period after experiencing a 5.1% drop over the previous week (five trading days), implying that the stock will likely rebound in the near term. But how would the returns fare if you are interested in holding MRK stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Merck stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

MACHINE LEARNING ENGINE – try it yourself:

IF MRK stock moved by -5% over five trading days, THEN over the next twenty-one trading days MRK stock moves an average of 4%, with a strong 77% probability of a positive return over this period.

Some Fun Scenarios, FAQs & Making Sense of Merck Stock Movements:

Question 1: Is the average return for Merck stock higher after a drop?

Answer: Consider two situations,

Case 1: Merck stock drops by -5% or more in a week

Case 2: Merck stock rises by 5% or more in a week

Is the average return for Merck stock higher over the subsequent month after Case 1 or Case 2?

MRK stock fares better after Case 1, with an average return of 4.1% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of -0.4% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Merck stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Merck stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For MRK stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Merck after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.

It’s pretty powerful to test the trend for yourself for Merck stock by changing the inputs in the charts above.

While MRK stock may see higher levels, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Freeport vs UnitedHealth.

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