Correction losers win big in stock rebound

October 11 23:40 2015

In the recent rebound rally on Wall Street, the stocks that got beat up the most in the first 10% correction since 2011 have gone up the most. “This has clearly been a counter-trend rally where what hasn’t worked so far in 2015 has done very well in October, while the strategies that had been outperforming haven’t outperformed this month,” according to a report from Bespoke Investment Report. “Investors have finally stepped in to buy up the most beaten-down names in the market, and they’ve stepped in in a very big way.”1215-stock-market_full_600

The Standard & Poor’s 500 stock index, which cratered 12.4% in the current correction, has rebounded nearly 8% from its late-August low, including Thursday’s nearly 1% rise that helped the index climb back above the key 2,000 level. The average stock in the S&P 500 is up nearly 7% since Sept.29, Bespoke says. But what has been working in the current rally might surprise some.

The smallest 50 stocks in the S&P 500 have doubled the return of the largest 50 stocks. And stocks with the highest dividend yields have outperformed stocks with no or low dividend yields. “Typically,” Bespoke noted, “you see high-yielding stocks underperform during rallies.” The biggest surprise? Laggards turned leaders. Stocks that held up the best during the correction have bounced the least (+3.7%) in this rally, while stocks that did the worst in the summer market swoon have exploded higher by 15% since Sept. 29.

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