S&P 500 Record Is Months Away, History Shows: Chart of the Day

The Standard & Poor’s 500 Index is heading for new highs early next year if history is any guide, according to Thomas J. Lee, JPMorgan Chase & Co. (JPM)’s chief U.S. equity strategist.

The CHART OF THE DAY tracks the S&P 500’s performance since October 2007, when the index began an 888.62-point retreat which lasted until March 2009. A subsequent bull market enabled the S&P 500 to recover 75 percent of the loss by February.

At 23 months, the time period was close to the median of 20 months for the 10 worst bear markets since the 1920s, Lee wrote today in a report. The remaining 25 percent was recouped in 10 months on average, Lee wrote, and this pattern suggests the 2007-2009 plunge may erased by early 2012.

Financial, industrial and technology companies are likely to lead the advance, just as they have done throughout the bull market, the report said. Lee has “overweight” recommendations on the three groups, indicating that they should carry more weight in clients’ holdings than they have in benchmark indexes.

Investors are likely to be “pulled into equities” along the way, he wrote, because many of them are cautious after two years of stock gains and are failing to keep pace with benchmarks such as the S&P 500. The index had an 8.2 percent gain for this year through yesterday.

Lee raised his S&P 500 estimate for the end of this year by 50 points to 1,475. His new projection is about 4 percent higher than the median of 1,420 among 13 Wall Street strategists in a Bloomberg survey.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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