US Stocks: Today Versus 1938

As investors debate the longevity of the nascent stock market advance, they are increasingly falling back on similar historical situations to glean perspective. In this regard, a comparison of the current market and that of 1936 - 1938 makes for interesting reading.

Strikingly, the charts below, courtesy of Bespoke, show similar patterns in the movements of the S&P 500 Index (^GSPC) from 2007 to 2009 to those of 1936 to 1938.

Given the similarity of the advances and declines in these periods, Bespoke looked at how the S&P 500 would have to perform going forward in order to keep the relationship intact.

At its peak on May 8, the S&P 500 had notched up gains of 38.2% from the March lows. In 1938, the S&P advanced 50.5% in the four months following its low.

Bespoke said: “If the S&P 500 were to have a similar rally off its lows today, it would top out at 1,018. While breaking 1,000 on the S&P 500 seems remarkable given where we were in March, it is still nearly 200 points lower than where the index was trading before the Lehman Brothers bankruptcy.” Time will tell …

Source: Bespoke, May 18, 2009.

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