History shows that 1995 is 2021's twin
This year has been a lot like 1995. It has been more like that year than any other, at least in terms of performance. In August, we looked at some of the records being set this year during one of the most persistent and consistent rallies of all time. The one year that was consistent with pretty much all of the momentum studies we've looked at this year is 1995.
That year rallied strongly in September while this year stumbled. Otherwise, they followed each other closely, even including some December weakness.
If we go back to 1928 and look at the most highly-correlated years, there have been 18 others with a correlation greater than 0.85 (out of a scale from -1.0 to +1.0). Even with that expanded universe, 1995 still stood out as having the tightest relationship to 2021.
We're most concerned about what these high correlations might mean going forward. Based on those precedents, the answer is positive, at least in the couple of weeks heading into and immediately after the New Year. Over the next 2 weeks, the S&P rallied 15 out of 18 times.
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