The following is the S&P 500 chart in 2009.
2009 was the year the S&P came out of a massive bear market bottom. The following events show how the S&P made this bottom.
Q4 2008 earnings season (in January 2009): The banks’ earnings reports were very bad. The S&P fell in January because the fundamentals were deteriorating faster than analysts’ estimates.
From January to February 2009: Jack Welch said that the U.S. economy and banks were starting to stabilize. JPMorgan CEO Jamie Dimon said the same thing on CNBC.
February 2009: JPMorgan, the best of all the U.S. banks, finally saw its stock price crash. All other U.S. bank stocks had crashed.
February 13, 2009: A $787 billion stimulus package under Obama was announced. The S&P was holding steady (flat) until this news came out. After the stimulus package was announced, the S&P sold off. This selloff was the last leg of the bear market, which bottomed on March 6, 2009.
By mid-February, it was clear that U.S. economic data had either stopped deteriorating or was deteriorating at a much slower pace.
March 6, 2009: Bear market bottom.
March 11, 2009: Citigroup came out with a bullish surprise: it said that it was profitable in January and February 2009. A few other banks said that they were profitable too. In addition, Jamie Dimon said that he saw modest signs of an economic recovery.
March 18, 2009: the Fed announced QE1.
mid-March 2009: Signs showed that the U.S. housing market’s decline had either drastically slowed down or stopped.
Q1 2009 earnings season (in mid-April): The banks released surprisingly good earnings! Companies in many other sectors released earnings reports that beat expectations as well! The U.S. stock market went up steadily in April.
U.S. economic data released in April showed a slight deterioration in the U.S. economy. Some investors feared that the March-April 2009 rally was just a bounce, after which the bear market would resume. We believed otherwise. Our model called the bottom of the bear market in late-March 2009. It’s important to focus on the OVERALL trend of the economic data, not the week-to-week economic data.
Our model predicted the June 11 to July 8 correction (9%). Our model predicted that it would be a big correction beforehand.
June 5, 2009: The jobs report showed a massive improvement. The economy was now only cutting 300k jobs a month, up from cutting approximately 600k per month over the past 6 months. This was a massive positive jump in the jobs data. The jobs market was clearly recovering.
mid-June 2009: Since commodity prices rebounded so fast (commodities bottomed in Q4 2008), investors started to fear that the Fed would hike interest rates. The 10 year Treasury yield rose pretty fast to 4%. This demonstrates that investors should focus on the Fed’s tone. At the time, nowhere in the FOMC statements did the Fed mention a potential rate hike.
July 13, 2009: the June-July correction was literally stopped by Meredith Whitney (a famed analyst at the time b/c she was the only bank analyst to predict the 2008 crisis). Whitney publicly stated that Goldman’s earnings and outlook would be positive. The S&P soared on Whitney’s statement. Goldman released earnings the next day, which was followed by earnings reports from other banks. The S&P soared while the entire Q2 2009 earnings season (in July) beat estimates like crazy.
November 2009: Many government stimulus plans ended in November. E.g. Cash for Clunkers, which boosted auto sales (and thus boosted the Retail Sales data series).
November – December 2009: Banks such as Citigroup, Wells Fargo all started to pay back their U.S. government emergency loans via new public stock offerings.
Nov 30, 2009: The $8k tax credit for first time homebuyers ended. However, the end-date was quickly extended to April 30, 2010.
December 8, 2009: The first sign of Greek debt problems emerged when Fitch downgraded Greece’s credit rating.
December 17, 2009: Standard and Poors downgraded Greek debt for the first time. The S&P (and especially financial stocks) fell on this news. However, the S&P kept going higher in the weeks after these initial signs of Greek problems.
The Santa Claus rally pushed the S&P higher during the second half of December.