Rally and pullback

To buy the dip or wait—that is the perennial market question. And it’s never one that has a clear-cut answer.

Humana (HUM) fell 12% on Tuesday amid reports that changes to Medicare ratings may present a challenge to the company.¹ The move took a notable bite out of the health care insurer’s roughly 50% rally off its mid-July low (its lowest level since 2017), which got a significant boost from a July 30 earnings beat:

Shares dropped another 7% in early trading on Wednesday, but recovered to close slightly positive.

A 12% down day is a pretty rare event for HUM. The last time it fell that much was in April 2024, and it’s experienced only forty 10%-or-larger down days since 1982.² And as one would expect, many of those days occurred when the stock was already moving lower. Only 18 of the 40 sell-off days were preceded by an up day, as was the case this week. Similarly, only nine occurred within three trading days of the stock hitting a 10-day (or longer) high.

Here’s a look at how HUM performed after all 40 of the 10%-or-larger down days. It shows the stock’s net median return five, 10, 20, 30, and 40 trading days later:

Although the median return was negative after five days (the stock moved lower in 27 of 40 cases), it was positive at every other interval, and topped 10% at the 30-day mark. But the fact that the stock was, more often than not, lower after five days suggests such down moves are sometimes followed by more short-term volatility.

What this chart doesn’t show is there was a noticeable difference in HUM’s short-term performance based on whether it closed higher or lower the day after the big down day. After the 25 times the stock closed higher:

1.  Its median five-day return was positive rather than negative, and it was higher in 14 out of the 25 instances.
2. However, the average five-day return was negative because the stock fell more than 5% in seven instances and more than 13% in two instances.

It remains to be seen which path the stock will take in this case. But the lesson from its historical performance is that while negative surprises like the one that occurred this week may sometimes represent longer-term opportunities, it can sometimes take the market several days to digest the news.

Today’s numbers include (all times ET): consumer price index (8:30 a.m.), weekly jobless claims (8:30 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Adobe (ADBE), Kroger (KR).

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¹ Bloomberg. Humana Sinks on Report That Medicare Bonuses Now Harder to Get. 9/9/25.
² All figures reflect Humana (HUM) daily prices, 1982-2025. Supporting document available upon request.