2013.10.0106:44:46UTC+00U.S. stocks surge, S&P 500 follows advances of '54

U.S. stocks are exchanging virtually in lockstep with 1954 year for American equity and the time when shares finally reclaimed all their losses from the Great Depression.

The Standard & Poor’s 500 Index’s return in 2013 are tracking day-to-day price actions in 1954 almost identically, according to data compiled by Bespoke Investment Group and Bloomberg. In no other year are the trading patterns more the same to 2013 since data on the index started 86 years ago. The correlation coefficient between this year and 1954, when the benchmark gauge skyrocketed 45 percent, is 0.95 out of a maximum of 1.

Partial Shutdown

The U.S. government is moving toward a partial shutdown for the first time in 17 years tomorrow as Congress deadlocked over Republicans’ insistence on delaying the 2010 health-care law. Senator Richard Durbin of Illinois, the chamber’s second-ranking Democrat, predicted the government will close after the House voted 231-192 to stop many of the Affordable Care Act’s central provisions for one year and tie that to an extension of government funding through Dec. 15.

Record Highs

The gauge surpassed its record of 1,565.15 on March 28 and has climbed 7.8 percent since then. Kroger Co. and Honeywell International Inc. rose above their all-time highs this year, and almost 200 S&P 500 companies in September exceeded their peaks from the last 52 weeks, data compiled by Bloomberg show.

Valuations Spike Up

GDP has expanded at a slower pace during this bull market, climbing an average of 2.2 percent each quarter since the recession ended in 2009. The index’s price-earnings ratio increased to 16.2 from 14.1 in January and profits have almost doubled in the past four years.

“Stocks are clearly less attractive than they were a year ago, but they’re still attractive relative to many other asset classes,” Paul Zemsky, the New York-based head of asset allocation at ING Investment Management, which oversees $180 billion, said Sept. 26.

Slowing Development

The bull market that began in March 2009 has already extended beyond the four-year average length of rallies since World War II, according to data compiled by Bloomberg and Birinyi Associates Inc. U.S. economic and earnings growth are slowing, a sign that equities may lose momentum, according to Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland.

Stock Valuations

U.S. profits have increased an average of 4.2 percent per quarter since the start of last year, compared with the 28 percent average in 2010 and 2011. Companies will increase earnings 5.2 percent for the full year and 3.2 percent excluding financial firms and banks, according to more than 11,000 analyst estimates compiled by Bloomberg.

Fund Flows

Confidence was shattered in the 2008 financial crisis. U.S. equities lost $11 trillion in worth and stock mutual funds had more than $200 billion in withdrawals from October 2007 through March 2009, according to data compiled by Bloomberg and the Investment Company Institute. Investors are just now returning to the market, adding about $15 billion to equity funds in 2013, the first annual increase since before the crisis.

‘Structural Issues’

“We get better at dealing with challenges as time goes by,” Stoltzfus said. “We have gotten more accustomed to dealing with problems that are related to structural issues.”

Boeing Peak

Boeing Co., the world’s largest planemaker, exceeded its 2007 peak in July. After gaining another 10 percent, the Chicago-based company trades at 22 times earnings, in line with the 10-year average.

Should the S&P 500 continue to follow the pattern of 1954, more gains are ahead. The index rose 11 percent in the fourth quarter of that year, the biggest advance since 1943, according to data compiled by Bloomberg.

“What drove stock prices higher then was a revitalization of absolutely destroyed confidence,”Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion, said in a Sept. 25 phone interview. “What’s driving things here is that same slow but steady revival in confidence.”