One of the approaches we use at Bespoke is to look for parallels between the present and the past. Often we will find that while history doesn't always repeat itself, comparable periods will have similar outcomes. With that in mind we looked to find years in the past which had the greatest correlation to the present. Below we highlight the five years since 1950 which have the greatest correlation to 2007, and in each chart we show the S&P 500's performance from 8/27 through the end of that year. Of the five years highlighted, the market finished the year higher from where it was on 8/27 four times for an average gain of 1.64%. However, we would caution that the one year of negative returns was a painful 10.4%.
Some may recall that we performed this exercise earlier in the Summer, when 1963 had the greatest correlation to 2007. Since then however, 1963 has become less correlated as the market has been slower to rebound this year from its Summer sell off than it did in 1963. Another interesting thing to note about the five years highlighted is that like 2007, three of them came in the third year of a Presidential term (1963, 1975, and 1983).
hi, Loved your article comparing the 5 old charts of the S&P to today's S&P. I would have liked to see you bring in year 1998. Very similar and it had a subprime problem back then. In 1998, from mid-July to early October, the S&P lost 22%. I wonder if we are heading down some more for today's market. The downtrend is still in place and we have not crossed the 50-dma for me to become outright bullish. Bob
Posted by: Robert Dillon | August 29, 2007 at 04:18 PM