S&P 500: Gutsy Investors Load Up On 9 Stocks In Surprise $1.3 Trillion Rally

Many S&P 500 investors are still hiding from the bear. But some are stepping in front of what they think is a moneymaking moment in stocks.

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Nine stocks in the S&P 500, including financial Bank of America (BAC) and JPMorgan Chase (JPM), plus PerkinElmer (PKI), jumped 10% or more in the sudden rally that turns one-week old on Wednesday, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That’s an impressive gain: essentially a typical yearlong gain in just five days.

It’s a gusty move for investors, though, as multiple fake-out S&P 500 rallies this year snared investors each time. Bulls are hoping stocks are low enough to price in an economic slowdown that might be at its worst in six months, says Nicholas Colas of DataTrek Research.

“Cautious as we are about the near-term direction of U.S. (and) global equities, it always pays to consider the other side of the trade,” he said.

Surprise Rally In October

Seeing the S&P 500 rally is a welcome sight for investors battered all year with losses.

The S&P 500 rose 4% from the recent low on Oct. 12. That might not sound like much of a gain, but it’s at least a break from the 9% drop in September and 3.5% drop in August. And all told it’s enough to add $1.3 trillion back to the market values of companies. That helps undo some of the $13 trillion in paper losses investors suffered from this year so far, says Wilshire Associates. Besides, October is known as the “bear killer” month.

And it’s interesting, too, to see it’s not energy this time propelling the rally. It’s financials. The Financial Select Sector SPDR ETF (XLF) is up 6.6% from the Oct. 12 low. That’s a larger rally than any of the other 11 S&P 500 sectors.

What kinds of S&P 500 stocks are getting the most attention?

Big Financials, Big Gains

It’s been a long time since financial stocks outperformed, but they’re a favorite in this recent rally.

Four of the S&P 500 stocks to rally most in the mid-October rally hail from financials. And one of the biggest of them all, Bank of America, is leading the charge. Shares of the bank are up nearly 17% since this rally kicked off. That’s been enough to add more than $40 billion in market value to the stock. And it’s the biggest rally among any stock in the S&P 500.

Shares went into hyperdrive following the bank’s Oct. 17 report of third quarter earnings that topped expectations by nearly 4%. The bank is benefiting from higher interest rates. “The highlights of this quarter were also once again marked by good organic customer activity,” said BofA CEO Brian Moynihan in a quarter earnings call with investors. “This was coupled with a significant increase in net interest income.”

But BofA isn’t alone. Shares of JPMorgan Chase vaulted nearly 15% during the rally, making it the No. 2 best S&P 500 stock in that time. The bank on Oct. 14 topped third-quarter profit forecasts by an even larger margin than that of BofA: 9.5%.

Finding Winners In A Bear?

Experienced investors know how risky it is to try to get into S&P 500 stock rallies too early.

Shares of PerkinElmer are up nearly 12% in the rally. Investors think the company that provides lab services and supplies to researchers is overly beat up. Sure, the company’s profit is expected to drop by more than 30% this fiscal year. But now that shares are selling for just 23.3 times earnings the past 12 months, investors seem to think now’s the time to try again.

But beware. The S&P 500 hasn’t rewarded bravery so far. “This is an impressive bear-market rally that will likely get faded as the Fed is nowhere near ready to downshift their tightening pace,” said Edward Moya of Oanda.

Rally’s Big Winners

Top gainers in S&P 500’s 4% rally since Oct. 12

Sources: IBD, S&P Global Market Intelligence