The following is the S&P 500 chart in 1996.
*Read the entire history of the U.S. stock market here.
The IPO market soared in 1995 (particularly tech companies). This surge was expected to continue in 1996.
January 1, 1996: Economists forecast slower economic growth and lower interest rates in 1996 compared to 1995 (according to Wall Street Journal’s semiannual survey of 64 economists). The economic data’s deterioration in the 2nd half of 1995 was still felt in January-February 1996. For example, manufacturing, retail sales during Christmas, and the employment reports were all weak.
November 14-10, 1995 and December 16 1995 – January 6 1996: The U.S. government shutdown. The S&P had no overall bearish reaction to this shutdown. On some days the S&P went down amidst shutdown-related news, but for the medium term this had no impact on the S&P. E.g. the S&P fell on January 9-10 amidst budget talks between Bill Clinton (Democrats) and the Republican-controlled House of Representatives.
The S&P soared while the budget and debt ceiling tug of war between Republicans and Democrats/Clinton continued in 2nd half of January. This shows that it’s impossible to consistently predict short term bottoms and tops. You have no idea when the S&P will start to disregard bad news.
Q4 1995 earnings season (released in January 1996) was mixed. At first the S&P was flat during earnings season. Then towards the end of earnings season the S&P rallied vigorously (late-January and 1st half of February).
It was clear by February 1996 that the U.S. stock market’s total number of stock splits would soar just like it did in 1995. Stock splits are bullish signs for the S&P 500. The individual stock’s price tends to go up a few percent between the time the split is announced and when the split actually happens. This rally exists because companies don’t split their stocks if bad news is about to happen. Companies often package splits with other good news for shareholders (e.g. dividend increases and stock buybacks).
Beginning in March, every single major economic indicator went from “deteriorating” to “improving”. The change happened overnight. This was partially because the weather-related bearish effects in January were gone by February, whose data was released in March. Retail Sales, New Home Sales, Initial Claims, Housing Starts, Employment Report (700k jobs created) – everything was good.
This demonstrates that you never know when the economy will change directions. Do not predict where the economy is going. Simply watch where the economy is headed right now.
The economic data released in April was good too.
Q1 1996 earnings season (released in April 1996) saw most companies beat expectations (even though the S&P 500’s aggregate earnings was flat quarter-over-quarter. But it’s the “beat” or “miss” that counts). The S&P went up during this period.
The 6% correction from mid-February to mid-May 1996 happened for no reason. The media at the time attributed it to rising yields. We don’t think so. From January-May 1996, yields went up only from 6% to 7%. That was not a significant rise.
Personal bankruptcies increased in 1996. However, this was not a bearish sign for the economy or stock market. Personal bankruptcy filings is a lagging indicator. Filings went up from 1986-1992 and 1994-1996. Filings lag the real-time economy because during the first leg of the economic recovery, a lot of companies are still cutting jobs.
The 11% correction from May 23 – July 16 1996 happened on no real news either. During this correction, NASDAQ and tech stocks fell much more than non-tech stocks.
July 16, 1996: On the last day of this 11% correction, TWA Flight 800 crashed in Long Island, killing all 230 passengers. Some people at the time thought it might be terrorism. The S&P crashed during the intraday but rallied and closed near the open.
The rest of 1996 and early 1997 was REALLY QUIET. There was no major news related to macro or global economic forces and events. As we’ve said before, the S&P tends to soar when everything is quiet on the news front. 1996 was no exception. The news primarily focused on individual companies and tech stocks in particular.