Can Charles Schwab Stock Rebound From Large Drops?

by Trefis Team
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Trefis
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Charles Schwab
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We started with a simple question about Charles Schwab Stock (NYSE: SCHW). Given a certain drop or rise, say a 5% drop in a week, what should we expect for the next week? Is it very likely that SCHW will recover next week? What about the next month or a quarter?

In fact, we found that if SCHW stock drops 5% in a week (5 trading days), there is a high chance that Charles Schwab’s stock moves just above 2% on average in the next one month (21 trading days); a 55% chance of positive return. Want to try other combinations? You can test a variety of scenarios on the Trefis Machine Learning Engine to test the Average and Excess Return after a Fall or Rise in Charles Schwab stock. For example, SCHW stock has moved -2.9% in a week (5 trading days). Using this trend and 20 years of historical stock data, the Trefis AI engine finds that the stock will likely move 1.1% over the next one month (21 trading days). The information is quite helpful to know for someone trying to recover from a loss.

Knowing what to expect for almost any scenario is powerful. It can help you avoid rash moves. Given the recent volatility in the market, the mix of macroeconomic events, including the trade war with China, the upcoming elections, and the US Federal Reserve’s moves, we think investors can prepare better.

MACHINE LEARNING ENGINE – try it yourself:

IF SCHW stock moved by -5% over 5 trading days, THEN over the next 21 trading days, SCHW stock moves an average of 2.5 percent, which implies an excess return of 1.6 percent compared to the S&P500.

More importantly, there is 55% probability of a positive return over the next 21 trading days and 49.8% probability of a positive excess return after a -5% change over 5 trading days.

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

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

Answer:

Consider two situations,

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

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

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

SCHW stock fares better after Case 1, with an average return of 2.4% 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 0.2% 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 shown 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 Charles Schwab 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 Charles Schwab 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 SCHW stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

 

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 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 – although SCHW stock appears to be an exception to this general observation.

SCHW’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

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

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

 

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