The following is the S&P 500 chart in 2010.
*Read the entire history of the U.S. stock market here.
Earnings expectations for Q4 2009 (released in January 2010) were pretty high. Even though the S&P had a good earnings season, the S&P was unable to go up.
January 21, 2010: Obama announced financial regulation (seeking revenge against Wall Street for the Street’s role in the 2008 crisis), so a 9.2% correction from mid-January to early February began in earnest. Our model was not able to predict this medium sized correction. With the broader picture of financial regulation in mind, the S&P sold off on tech’s earnings reports (Microsoft, Google, Amazon).
Obama wanted to tighten regulations on America’s biggest financial institutions and banks. This included preventing banks like Goldman from creating their own hedge funds, restricting the number of prop desk trades a bank could make, tightened regulations on loans, higher reserve requirements, etc.
February 4, 2010: The media and investors started to become concerned about Greek, Portuguese, and Spanish debt. The S&P sold off on this news. However, this selloff was the final selloff of the January-February 2010 correction. Concerns about a potential Greek default dominated financial media headlines even though the S&P proceeded to rally after February 4.
The early February – late April 2010 rally occurred while the media focused on news that EU leaders were meeting to figure out how to deal with the Greek debt crisis.
February 22, 2010: Obama announced his Obamacare plan. Obamacare passed Congress on March 22.
March 23, 2010: Fitch downgraded Portugal’s debt.
March 26, 2010: EU and IMF agreed to a bailout package for Greece and other debt plagued Eurozone nations. Despite this clearly positive deal, Greece sovereign yields continued to soar after March 26 until April 8, 2010.
April 4, 2010: The EU officially made a $40 billion loan available to Greece if Greece needed it.
April 16, 2010: the first casualties of financial regulation emerged. U.S. regulators charged Goldman with defrauding investors before the 2008 crisis. From 2010 – 2014, the U.S. government incessantly slapped tens of billions of dollars in fines on different banks.
In mid-April 2010, investors were surprised that banks reported upbeat earnings reports. Many thought that financial regulation would hurt bank earnings via increased costs and decreased revenues. The bank sector rallied, lifting up the entire S&P in the 2nd half of April.
April 22, 2010: An EU report suggested that Greece’s 2009 deficit was bigger than the government reported. Moody’s downgraded Greece’s debt.
April 22, 2010: Obama made another speech on financial regulation.
April 23, 2010: Greece asked for even more bailout money. Greece announced that it needed $53 billion, even though the EU already gave them $40 billion. Previously, investors thought that the EU governments could contain the Greece problems. But by late April, investors started to think of Greece as a bottomless pit. Greece needed to refinance $11 billion in loans by May 19, 2010.
April 27, 2010: Standard and Poors cut Greece’s debt rating (again) and Portugal’s debt rating. The S&P made a rather big selloff on this news, thereby really kicking off the late-April 2010 to June 2010 big correction. Our model was able to predict this big correction, and we knew that it would be a big correction beforehand.
April 28, 2010: Spain’s debt was downgraded.
April 28, 2010: A $53 billion bailout package from the EU and IMF was approved for Greece. The bailout package was still being set up, so Greece could not access the money yet. Clearly this meant that the worst of the Greece debt crisis was over. However, the S&P proceeded to crash after the worst was over. This demonstrates that the Greece debt crisis did not cause the S&P’s crash. This was merely an excuse that the mainstream media made up.
May 3, 2010: EU nations agreed to provide a bailout package worth $146 billion over 3 years for Greece. Thus, Greece’s problems were solved. This insanely large bailout package was aimed to convince investors that the EU would do whatever was necessary to support its failing member states.
April 20, 2010: Deepwater Horizon exploded (offshore oil rig in the Gulf of Mexico) and oil started leaking on April 22. The oil leak lasted into July. Some investors attributed the S&P’s crash to the BP oil spill, but we know otherwise. The BP oil spill was just an excuse for the S&P’s selloff.
May 10, 2010: The S&P made a big 1 day bounce for 2 reasons:
- It was a technical bounce after the extremely oversold conditions caused by the crash on May 6.
- The EU announced a potential $1 trillion bailout package over 3 years for all troubled member nations (the PIGS).
Throughout the entire April – June 2010 correction, many federal and state agencies jumped on Obama’s financial regulation bandwagon. Seeking revenge for the 2008 crisis, these agencies piled on investigation after investigation.
late-night May 20, 2010: the Senate passed a financial reform bill. By now investors were certain that this bill would be pass into law because the Democrats (and Obama) held a massive majority in the House of Representatives. This marked the S&P’s bottom before another big bounce in the S&P.
May 28, 2010: Spain’s debt rating was cut again by a rating agency, even though the EU already announced a $1 trillion rescue package. The ratings agencies tend to be run by second class individuals who can’t find employment elsewhere on Wall Street. Their ratings tend to lag the real time situation, rendering the ratings meaningless.
June 2, 2010: the U.S. announced a criminal investigation into BP for the oil spill. BP was still unable to plug the leak.
The S&P bottomed on July 1, 2010. Q2 2010 earnings season (in July) pushed the S&P higher. Q2 earnings weren’t even that good because some banks reported solid earnings while other banks reported weak earnings. However, the S&P always either goes up or goes flat during an earnings season if the S&P fell a lot before that earnings season.
August 2010: the S&P retraced 61.8% of its July rally. This retracement coincided with a sudden deterioration in U.S. economic data. However, the weak economic data didn’t push the S&P to new lows (vs July 1, 2010 low).
At the bottom of the 61.8% retracement in August, Bernake hinted at a new round of quantitative easing (QE2) while he was conferencing at Jackson Hole. The S&P soared nonstop from September 2010 to mid-February 2011. This demonstrates that quantitative easing had a very positive effect on the S&P from 2009-2014.
After the economic deterioration in August 2010, the U.S. economy suddenly improved markedly starting September 1 with the ISM manufacturing data.
The S&P went up nonstop during the Q3 2010 earnings season (in October). U.S. economic data in October was decent too.
October 8, 2010: The jobs report was weak. However, the S&P went up regardless. The media made standard bullshit excuses, stating that “bad economic data means the Fed will initiate QE2, which is good for stocks”. This just shows that investors should ignore the day-to-day market reactions to news.
Nov 3, 2010: the Fed announced QE2 at its Fed meeting. The S&P spiked on this news for 1 day, then made a 4.4% pullback over the next few weeks, even though QE2 was clearly bullish for stocks in the long run. Then the S&P soared in December. This demonstrates that investors should ignore the market’s initial reaction to fundamentals. Focus on the fundamentals, not whether the market is going up or down. The market will eventually move in the direction of the fundamentals.