The following is the S&P 500 chart in 2013.
*Read the entire history of the U.S. stock market here.
2013 was a very quiet year for the U.S. economy and U.S. stock market. Quiet years are most conducive to stock market gains. When the U.S. economy grows nicely, corporate earnings are growing, and there are no important domestic/foreign political crisis (the Middle East/Africa doesn’t count), the S&P tends to soar.
Jan 30, 2013: the initial GDP report showed that U.S. GDP contracted in Q4 2012! This is nonsensical because all the other economic data showed that the U.S. economy was growing solidly in Q4 2012. This shows you why GDP is practically a useless economic indicator to investors. It is very wild, unpredictable, and lags more real-time data.
There was a 7.5% correction from May 22 to June 24, 2013. The widely accepted reason for this correction is inane and just demonstrates that most small corrections are unpredictable using news/fundamentals. According to conventional belief, the correction started when the Fed stated “we may start to taper QE3 if the economy continues to improve”. There was nothing surprising about this statement, but somehow the market still thought it to be bearish. Bernake repeated the statement “we’ll start to taper QE3 at the end of 2013 if the economy is solid and will finish tapering by mid-2014”. This caused the S&P to fall for 2 days (June 19-20), which was just before the correction’s bottom. The market bottomed without any comforting statements from the Fed. Our model predicted this small correction.
It is impossible to make investment/trading decisions from Fed statements such as these. Often times, the market goes up on statements like “the Fed will begin to taper soon.” You have no idea when the market will latch on to a dumb idea like “the Fed will begin to taper soon” and when the market will stop latching on to those dumb ideas.
October 1, 2013 at midnight: the U.S. government shut down, but the U.S. stock market didn’t care at all. The market kept going up slowly. Markets aren’t afraid of man-made problems that men can stop. A government shutdown is man-made. It can be fixed and everyone knows that this political game WILL be fixed. The government shutdown needed to end by October 17, 201, when the debt ceiling would be hit and the U.S. would default. People know that this “problem” is a fake problem.
October 16, 2013: Congress reached a deal and the government shutdown ended. The debt ceiling was avoided.
With Q3 2013 earnings season in the second half of October, the S&P started to soar again in the 2nd half of October.
Dec 18, 2013: the Federal Reserve officially announced that it would start to taper QE3. Instead of falling on this news, the S&P 500 soared on the news! This shows that it’s impossible to predict how the S&P will react in the short term to news or central bank policy.
The Santa Claus rally caused the S&P to surge into year-end.