There are some things you just don't see very often. Four-leaf clovers. No-hitters in professional baseball. A 20-for-1 stock split. But the third item on that list isn't nearly as rare as it has been in the past.
The market has already seen one such split this year when Amazon.com (AMZN 1.40%) did it in June. Next, Alphabet (GOOG 1.85%) (GOOGL 1.84%) will split its stock 20-for-1 on July 15.
As the old saying goes, "History never repeats itself, but it does often rhyme." With that idea in mind, Amazon's recent stock performance suggests that this could be a good week for Alphabet.
Anticipation buying
The primary rationale for stock splits is that they make shares more affordable for smaller investors. And in theory, a lower share price will attract more investors, which can serve as a catalyst for the stock after the split.
However, that's not what occurred for Amazon last month. Instead, the e-commerce and cloud giant's share price fell after its split. It's possible that the same pattern will happen with Alphabet's shares.
NASDAQ: AMZN
Key Data Points
But there's another thing about Amazon's recent performance that shouldn't go unnoticed. While its share price declined after its split, it rose by a double-digit percentage in the days leading up to it.
Some investors seemed to be buying in anticipation that the 20-for-1 stock split could provide a big boost for Amazon. This pre-split gain followed by a post-split drop is reminiscent of the old investing adage, "Buy the rumor, sell the news."
Could similar anticipation buying bolster Alphabet this week? It wouldn't be surprising. The tech giant's shares gained more than the broader market did last week. The upcoming stock split could keep that momentum going.
NASDAQ: GOOGL
Key Data Points
Correlations
The correlation coefficient between the share prices of Amazon and Alphabet has risen so far in 2022 and currently stands above 0.81. That reflects a strong relationship between the movements of the two FAANG stocks.
However, Alphabet stock has an even stronger correlation with the price fluctuations of the S&P 500. Similarly, Amazon's correlation with the S&P is stronger than its correlation with Alphabet. Therefore, any positive impact that anticipation buying of Alphabet stock might produce would likely be neutralized if the broad market sinks. Moreover, earnings season kicks off in a major way this week, so there could be significantly more market volatility than there was during the week that Amazon conducted its stock split.
An easier prediction
Accurately predicting the short-term movements of stocks is difficult -- even when there's an obvious potential catalyst on the way. It's much easier to predict how a given stock might fare over a decade because long-term performance depends more on the fundamentals of the underlying business.
The good news for Alphabet is that its underlying business remains exceptionally strong. Billions of people across the world use Google Search, YouTube, Android, Chrome, and Alphabet's other apps every day. An ever-growing number of organizations are turning to Google Cloud to host their servers. Alphabet has other potential long-term growth drivers as well, notably including its Waymo self-driving car technology business.
Maybe Alphabet stock will have a good week due to investors buying ahead of its split. Maybe it won't. Either way, it seems to be a pretty safe bet that Alphabet will have a good decade. Unlike four-leaf clovers, no-hitters, and 20-for-1 stock splits, excellent returns for Alphabet over 10-year periods aren't rare at all.
