Believe it or not, some stocks have enjoyed rather bullish returns over the past six weeks, largely resisting the volatility and downward pressure seen elsewhere.
Online trading appears to be thriving, if the stock market returns in this subsector are any indication.
Our motif reflecting the world of online investing, Electronic Trading, has had a 23.4 percent return over the past 12 months.1
This compares to a decline of 2.5 percent in the Standard & Poor’s during the same time period.
The motif has also had more moderate volatility than the broader market of late.
Almost one-fifth of the motif’s weighting consists of IntercontinentalExchange Group Inc. (ICE), which continues to fetch strong ratings.
The latest among them came this week with Jeffries Group reiterating its buy rating on the stock of ICE, which is the parent company of the New York Stock Exchange and 22 other marketplaces worldwide.2
ICE also fetched a price target of $260, suggesting an upside of 14.1 percent.3
This came in higher than the consensus price target of $255.78.
The consensus is based on the average of the estimates put forth by the 13 investment banks that cover the stock.
Seven of these analysts give ICE a rating of buy, five maintain a rating of overweight, and one has a hold rating.
These factors together account for a one-year return of 21.8 percent in ICE.4
Another one of the larger holdings in the motif, CME Group, has had an annual return of 21.3 percent over the same time period.
CME—which owns the Chicago Mercantile Exchange and several other markets and clearinghouses— has also gotten a lot of buy ratings from analysts, although there are also more hold ratings in the mix.
The average price target for the company rests at $93.00, based on estimates from 17 investment banks.
This suggests a potential upside of almost 2.9 percent from the stock’s current price.5
Additionally, nine of the other 11 stocks in the Electronic Trading motif are outperforming the Standard & Poor’s 500, along with the equities in the financial services sector.
Financial services firms have tended to outperform at times when investors have anticipated forthcoming interest rate increases.6
While a rate hike has been expected for some time now, the fact that the stocks in the online trading space are outperforming other financial subsectors suggests that other factors might be boosting the returns.
It remains to be seen whether these returns are indicative of the online trading subsector actually benefitting from the recent increase in volatility.
This might only be the case if the volatility also corresponds with increased transaction volumes.7
Research on whether heightened turbulence in the markets in any way corresponds to high-speed electronic trading is far from conclusive.
In the mean time, the online trading subsector provides a pleasant contrast to the bearishness sweeping across many other types of equities.
1 Performance as of market close September 29, 2015.
2 “IntercontinentalExchange Company Profile (NYSE: ICE),” MarketBeat.com, September 28, 2015.
3 Compared to the closing price of $227.79on September 29, 2015.
4 Performance as of market close September 29, 2015.
5 Compared to the closing price of $90.39 on September 29, 2015.
6 Zacks Research Staff, “How to Invest When Interest Rates Rise,” Zacks.co, June 10, 2015.
7 Groth, Sven S., “Does Algorithmic Trading Increase Volatility? Empirical Evidence From the Fully-Electronic Platform Xetra,” AISEL.com January 1, 2011.