With Microsoft Stock (NASDAQ: MSFT) down -8% in the last one month, dropping from about $227 to around $209, many Trefis users asked: how likely is it to continue the decline next week, next month, or over the next quarter?
According to the Trefis Machine Learning Engine, which identifies trends in the company’s stock price data for the past 20 years, returns for Microsoft’s stock average a solid 14% in the next one-month (21 trading days) period after experiencing a 20% drop over the previous month (21 trading days). Notably, though, the stock is very likely to outperform the S&P500 over the next month (21 trading days), with an expected excess return of 10% compared to the S&P500.
But how would these numbers change if you are interested in holding Microsoft 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 Microsoft 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 MSFT stock moved by -5% over 5 trading days, THEN over the next 21 trading days, MSFT stock moves an average of 2.4 percent, which implies an excess return of 1.5 percent compared to the S&P500.
More importantly, there is 55.8% probability of a positive return over the next 21 trading days and 53.9% probability of a positive excess return after a -5% change over 5 trading days.
Some Fun Scenarios, FAQs & Making Sense of Microsoft Stock Movements:
Question 1: Is the average return for Microsoft stock higher after a drop?
Consider two situations,
Case 1: Microsoft stock drops by -5% or more in a week
Case 2: Microsoft stock rises by 5% or more in a week
Is the average return for Microsoft stock higher over the subsequent month after Case 1 or Case 2?
MSFT stock fares better after Case 1, with an average return of 5.6% 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 0.8% 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 Microsoft stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
If you buy and hold Microsoft 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 MSFT 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:
You can try the engine to see what this table looks like for Microsoft 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?
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.
MSFT’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 Microsoft 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.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.