The following is the S&P 500 chart in 2015.
2015 was highly volatile year for the U.S. stock market. Fortunately, our model predicted the major downturns perfectly.
By early 2015, many investors and financial media organizations were talking about China’s economic slowdown. Many feared that Europe’s weak economy and China’s economic slowdown would spread to America, causing the U.S. economy to slow down.
Instead, we pointed out 2 things at the time:
- The U.S. economy is one of the world’s most closed-off economies. Approximately 72% of the U.S. economy’s activities are domestic-driven and have nothing to do with international trade. This is unlike countries like Germany, China, and Japan, who rely on international trade for their economies. Thus, we stated that a foreign slowdown would have little to no effect on the U.S. economy.
- The only thing a foreign slowdown would hurt is the U.S. stock market. Many foreign companies (e.g. Alibaba) are listed on the U.S. stock exchange. Thus, a decrease in earnings for foreign corporations would hurt the S&P 500’s earnings. But since foreign companies only account for a small part of the S&P 500, this impact would be negligible.
Thus, we argued that foreign economic problems would not impact America. With 20/20 hindsight, it appears that we were correct. The U.S. economy slowed down a tiny bit in early May 2015 and mid-October 2015.
Many investors were concerned about the “earnings recession” (consecutive declines in S&P 500 earnings). They said that “the U.S. economy went into an economic recession 7 out of the last 9 times the S&P went into an earnings recession”. We stated that this was not a real concern. 2015’s earnings recession was entirely attributed to the crash in energy sector earnings. All other industries were experiencing decent earnings growth. The U.S. economy will not enter into a recession just because energy sector earnings are declining. Energy earnings are a highly volatile component of the S&P earnings. The best way to look at earnings growth is “S&P 500 earnings, ex-energy”.
Before the August 24 2015 crash, 2 things occurred. The mainstream media believes that these 2 factors caused the S&P’s crash, but we know otherwise. Our model predicted it, and our model uses neither standard fundamentals nor standard technical analysis. The mainstream media’s “reasons” were just excuses.
- XLE (the energy sector ETF) fell from $82 to $66 during the beginning of May 2015 to the day before the August 24 crash. We know that historically, an XLE crash (usually accompanied by an oil crash) would coincide with an S&P 500 decline.
- China’s stock market index SSE crashed 35% in June-July 2015. The media claimed that “China’s stock market crash caused the U.S. market to crash”. This is a blatant lie. China’s stock market had bottomed in the beginning of July 2015, more than 1.5 months ahead of the S&P’s crash. It was the S&P’s August 24 crash that brought China down another leg, not the other way around. The U.S. stock market impacts all other stock markets, but foreign stock markets do not impact the U.S. stock market. History has proven this.