Nov. 17 (Bloomberg) -- The Standard & Poor’s 500 Index has surged to within 1 percent of recouping half the plunge that followed its October 2007 record, a signal to some chart analysts that the steepest rally since the 1930s will continue.

The measure has risen almost 434 points from a 12-year low of 676.53 in March on signs the worst economic slump since the Great Depression is abating. The S&P 500 peaked at 1,565.15 on Oct. 9, 2007, and then tumbled 888.62 points, or 57 percent, in 17 months.

For investors who make predictions using patterns in price graphs, a so-called 50 percent retracement would suggest that forecasts that the recession is ending are correct and equity gains will last. Strategas Research Partners LLC’s Christopher Verrone said the S&P 500 will likely jump 7.1 percent to 1,200 “in the snap of a finger” after crossing 1,120.84, the halfway point of its rout.

“It’s clearly bullish,” said Verrone, a technical analyst for the New York-based research firm. “It really speaks to the sustainability of the move we’ve seen since the March low.”

U.S. stocks rallied today, sending the S&P 500 to a 13- month high of 1,110.32, as a rebound in metal prices boosted commodity producers. The S&P 500 has advanced 64 percent in the past eight months after $11.6 trillion in government spending, lending and guarantees helped return the economy to growth following a year of contraction.

Proportions in Nature

Fibonacci analysts use a system pioneered by 13th century mathematician Leonardo Pisano, who discerned ratios from proportions found in nature. To adherents, the performance of an asset when it gains back 50 percent of a retreat can be used to forecast whether the advance will continue.

The stock market rally since March helped U.S. companies reclaim $5.16 trillion in lost market value, according to data compiled by Bloomberg. Household wealth in the U.S. increased by $2 trillion in the second quarter, ending a record slump since the third quarter of 2007, according to a Sept. 17 report from the Federal Reserve.

“It provides a sense of better-off-ness,” said Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., which manages about $98 billion. “Consumers are better off, their pockets are more flush and businesses are better able to take risk as long as the financial markets are performing well.”

Unlock Credit Markets

The Fed cut its target interest rate for overnight loans between banks to between zero and 0.25 percent in December, and has kept it there ever since. The central bank reduced its benchmark to a record low to unlock credit markets following the September 2008 bankruptcy of New York-based Lehman Brothers Holdings Inc. The TED spread, the difference between what banks and the U.S. Treasury pay to borrow for three months, has declined to 21 basis points from 134 points at the end of last year and 463 points a month after Lehman’s collapse.

While the S&P 500 gaining back 50 percent may help investor sentiment, “it’s just as likely to make people nervous,” said Lawrence Creatura, a fund manager at Pittsburgh-based Federated Investors Inc., which oversees about $390 billion. “A subset of investors think we’ve come too far without enough evidence to support the rebound.”

The unemployment rate in the U.S. jumped to 10.2 percent in October, the highest level since 1983, and the Reuters/University of Michigan preliminary sentiment index decreased to a three-month low of 66 this month. Earnings for the 444 companies in the S&P 500 that have reported third- quarter results since Oct. 7 fell 14 percent, a record ninth consecutive quarter of falling profit.

Valuations

The S&P 500’s rally pushed its valuation to 22 times the reported operating income of its companies, the most expensive level since 2002, according to data compiled by Bloomberg. The measure traded 20.6 percent above its 200-day moving average on Oct. 15, the most since November 1982.

Eric Green, the director of research at Penn Capital Management, says the S&P 500 hasn’t risen too far, too fast, because the bear market dragged it lower than prospects for economic and profit growth justified. The measure traded for 13 times company profits from the past 10 years in March, the cheapest since 1986, according to data from Yale University professor Robert Shiller, and pessimism in an American Association of Individual Investors poll climbed to a record.

The index retracing 50 percent of its retreat “symbolizes that people were way, way too bearish on the resilience of the economy,” said Green, whose company oversees $4.5 billion in Philadelphia. “It’s great to see. People used to be telling me that the S&P 500 would go to 500.”

To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Sapna Maheshwari in New York at smaheshwar11@bloomberg.net.

Last Updated: November 17, 2009 10:49 EST