Party like it's 1954

US stocks are trading virtually in lockstep with 1954, the best year for American equity and the time when shares finally recovered all their losses from the Depression.

The Standard & Poor's 500 Index's returns in 2013 are tracking day-to-day price moves in 1954 almost identically, according to data compiled by Bespoke Investment Group and Bloomberg. In no other year are the trading patterns more similar to 2013 since data on the index began 86 years ago.

The correlation coefficient between this year and 1954, when the benchmark gauge rose 45 per cent, is 0.95 out of a maximum of 1.

American equities this year climbed above the 2007 peak before the global financial crisis, like they did in 1954 when the S&P 500 reached a new high for the first time since 1929. While bearish investors say the correlation is irrelevant, bulls say the index will keep rising the way it did 59 years ago, as investors regain faith in US profits.

"The return of confidence theme is analogous to what was experienced in the '50s," said Jim Russell, a senior equity strategist at US Bank Wealth Management. "We'll never get an all-clear signal, but we got the good enough signal. People feel the crisis environment is behind us."

The S&P 500 fell 1.1 per cent last week to 1,691.75 points, the biggest drop since August, on concern that a political showdown over government spending will hurt economic growth. The index is up 19 per cent this year and has risen 150 per cent since the start of the bull market in March 2009.

The rally is following a similar path to the one 59 years ago. In 2013, the S&P 500 climbed from January to May, fell 1.5 per cent in June and rose 5 per cent in July. In 1954, the index posted gains for the first five months, lost momentum in June with an increase of less than 0.1 per cent and gained steam in July by advancing 5.7 per cent. Both years had losses in August.

The gauge surpassed its record of 1,565.15 on March 28 and has climbed 7.8 per cent since then.

In September 1954, the S&P 500 exceeded the 1929 record and rallied 12 per cent more until the end of the year.

"We're nicely above the old high, and we're just getting to a point where the economy is getting back online," said John Stoltzfus, chief market strategist at Oppenheimer & Co in New York. "There's another leg to come in this bull market."

The market gained in 1954 as the economy recovered from a recession and earnings expanded during the Cold War. While gross domestic product shrank 1.9 per cent in the first three months of the year, it grew an average of 5.6 per cent the next seven quarters.

GDP has expanded at a slower pace during this bull market, climbing an average of 2.2 per cent 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.

The bull market that began in March 2009 has already extended beyond the four-year average length of rallies since the second world war, according to data compiled by Bloomberg and Birinyi Associates.

United States economic and earnings growth are slowing, a sign that equities may lose momentum, according to Bruce McCain, the chief investment strategist at the private-banking unit of KeyCorp.

"I don't think we'll see fast enough growth like what we saw in the 1950s that would really offer the opportunity for a surging stock market," he said. "If you look at the valuations, we're not at extremely low levels."

Economists cut growth forecasts last month to 2 per cent for the third quarter from an earlier estimate of 2.3 per cent. GDP has not expanded faster than 3 per cent since the beginning of 2012.

US profits have increased an average of 4.2 per cent per quarter since the start of last year, compared with the 28 per cent average in 2010 and 2011.

While shares rallied this year, they are still cheaper than the historical average. The S&P 500's valuation is 17 per cent below the mean since 1998, data compiled by Bloomberg shows. During the last bull market, the multiple climbed as high as 21.7.

"As we are moving through these big problems the globe has had over the past five years, the valuation is going up," said David Chalupnik, head of equities at Nuveen Asset Management in Minneapolis.

"But the S&P 500 is reasonably priced versus its own history. Stocks still look attractive."

Confidence was shattered in the 2008 financial crisis. US equities lost US$11 trillion in value and stock mutual funds had more than US$200 billion in withdrawals from October 2007 up to the end of March 2009, according to data compiled by Bloomberg and the Investment Company Institute.

Investors are just now returning to the market, adding about US$15 billion to equity funds in 2013, the first annual increase since before the crisis.

It took 25 years for the US market to recover after the Depression. The Dow Jones Industrial Average fell 89 per cent from 1929 up to the end of 1932 and finally made up the losses in 1954.

The S&P 500 is on track for its biggest annual gain since 2009.

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