The average stock is up more than 6% since equities hit their recent lows on September 29th.  But this rally has been much different than prior ones we’ve seen over the last year or so.  That’s because this time markets have been led higher by the most unloved, beaten-down names, while prior market darlings have lagged.

Yesterday we sent paid subscribers a detailed analysis of the stock characteristics that are now leading the market.  This report looks at things like valuations, yields, market cap, short interest levels, institutional ownership, international revenue exposure, and analyst ratings to see which ones are driving performance the most.

To highlight the “buy-the-losers” trend we’re seeing, though, we broke the S&P 500 into deciles (10 groups of 50 stocks each) based on stock performance from the 5/21 all-time-high for the index through the 9/29 low.  We then calculated the average performance of the 50 stocks in each decile during the rally that we’ve seen since 9/29.

In the chart below, decile 1 all the way to the left contains the 50 stocks that performed the best during the 5/21-9/29 market correction.  Decile 10 all the way to the right contains the 50 stocks in the S&P that went down the most during the 5/21-9/29 correction.  As you can see, the results are as clear as day — the worse a stock did during the correction, the better it has done since September 29th.  In fact, the 50 stocks in decile 10 that went down the most during the correction are up a whopping 15.4% during this bounce!  Conversely, the 50 stocks that held up the best during the correction are only up 3.7% during the bounce.  That’s significant performance divergence.

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