Amazing share price surge turns FTSE 100 losers into winners

Whether it’s a bear market rally or sustainable recovery, the past three weeks has seen a big recovery for some stocks. Here are the really big movers.

Buying momentum rolled into a new month today as the FTSE 100 index surged to over 7,200, and UK stocks including Marks & Spencer Group (LSE:MKS) got another boost from softening gilt yields.

London’s premier index is now up 6% since 13 October, the date when markets globally started to recover on hopes that central banks may soon pivot to a slower pace of interest rate hikes.

Big blue-chip risers over the three-week period include British Airways owner International Consolidated Airlines (LSE:IAG) and the engines giant Rolls-Royce (LSE:RR.) as both have rebounded by over 20%.

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UK-focused companies feature heavily on the most-improved list, reflecting the return of political stability and hopes that interest rates won’t rise by as much as had been feared during the market turmoil triggered by the mini-budget at the end of September.

This revisiting of earlier worst-case calculations has helped the battered shares of Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV) rally by more than 16%, having previously fallen by over 50% in the year to date on worries over customer affordability.

As we reported on 11 October, balance sheets are significantly stronger in this cycle than the 2008 financial crisis and this should provide some protection for the high-yielding sector.

Income-focused investors have also got their appetite back for utilities, having seen valuations dented by a combination of higher debt costs and the sector’s diminishing appeal as higher interest rates boost returns available elsewhere.

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Shares in United Utilities Group (LSE:UU.) and Severn Trent (LSE:SVT) are up 15% since 12 October, while SSE (LSE:SSE) and Centrica (LSE:CNA) are more than 10% higher despite the ongoing threat of further regulatory interventions as governments look to claw back windfall power gains.

FTSE 100’s biggest risers since 12 October

Source: SharePad as at lunchtime 1 November 2022.

Other stocks whose valuations have attracted interest in recent weeks include JD Sports Fashion (LSE:JD.). The retailer was one of today’s biggest FTSE 100 risers, alongside miners Glencore (LSE:GLEN) and Anglo American (LSE:AAL) and Asia-focused insurer Prudential (LSE:PRU), amid speculation that China is looking at ways to relax its zero-Covid policy.

The retail momentum came as the yield on 10-year gilts stood near 3.4%, its lowest level since 21 September. Later this week, however, the Bank of England is expected to hike interest rates by 0.75% to 3% in a move adding further strain on household spending power.

For now, the calmer conditions in financial markets have contributed to another strong session for the FTSE 250 index, which is up by more than 10% since 12 October. Today’s biggest risers included Mitchells & Butlers (LSE:MAB), Marks & Spencer and Watches of Switzerland Group (LSE:WOSG).

The strong start to the month means a positive first day for ii’s Wild’s Winter Portfolios, which reflect the fact that 1 November to 30 April is historically the most profitable period for investors.

Conditions also continue to improve for technology and growth-focused stocks, even in the wake of last week’s series of disappointing big tech updates from the likes of Meta Platforms (NASDAQ:META) and Google owner Alphabet (NASDAQ:GOOGL).

That’s because the biggest story for investors remains the prospect of a Fed pivot, possibly as soon as December’s rates meeting. The picture is likely to become clearer on Wednesday, when the central bank delivers a fourth consecutive 75-basis-point rate hike.

Some Fed officials have already commented on the potential for a slower pace of rate hikes, leading to a sharp fall in the VIX index of volatility.

The S&P 500 is now up 9% from the 12 October low and the Dow Jones Industrial Average has just recorded its best month since 1976 after a gain of 14% in October.

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Reassuring updates in the banking sector mean JPMorgan Chase & Co (NYSE:JPM) and Goldman Sachs (NYSE:GS) are up 21.5% and 17% over the past three weeks, with other stocks trading sharply higher including Caterpillar (NYSE:CAT) and McDonald's (NYSE:MCD). Shares in Apple Inc (NASDAQ:AAPL) have also rebounded by more than 10% since 12 October, aided by Thursday’s resilient quarterly update.

However, UBS Global Wealth Management warned today that persistently high inflation means the current optimism may be overdone. Its chief investment officer Mark Haefele said: “We think the Fed sees its own credibility at stake, and we expect it to keep hiking aggressively until the official data show inflation is receding.

“Even when the Fed finally does stop raising rates, it’s worth remembering that monetary policy is likely to remain at restrictive levels for some time.”

Against this backdrop, UBS believes that pressure on corporate profits will only increase in the coming quarters and lead to a 4% fall in next year’s average S&P 500 earnings per share (EPS) to $215. In a full-blown recession, it believes EPS could slip to around $200.