This is the S&P 500’s chart in 1997.
*Read the entire history of the U.S. stock market here.
February 19 – April 14, 1997: The S&P 500 made a 10% correction. February 26 was the real start of this correction because the S&P was flat before this. On this day, Fed Chairman Greenspan said in his semi-annual “Humphrey Hawkins” congressional testimony that “stock prices are overvalued. We might need to hike rates to fight off inflation pre-emptively”. This was the first talk of a rate hike in this rate hike cycle. Prior to this U.S. Federal Reserve rates had been flat.
March 25, 1997: The Fed raises rates for the first time in this rate hike cycle. Thus begins the real DOWN wave of this S&P correction.
After the S&P bottomed on April 14, the S&P went up on Q1 1997 earnings season (released in April). Earnings results for banks and tech companies were good.
The 1997 Asian financial crisis really started in July. In July the S&P did not go down at all! Instead it went up very consistently.
July 2, 1997: Thailand is forced to freely float its currency because Thailand no longer had enough foreign reserves to defend its peg to the USD. The Thai baht crashes 20% and Thailand requests assistance from IMF.
July 8, 1997: Asian crisis start to spread. Malaysia spending a lot of its foreign currency reserves to defend its own currency. The Philippines devalues its currency on July 11.
July 24, 1997: Singapore’s currency starts to fall too.
August 14, 1997: Like Thailand, Indonesia is forced to freely float its currency.
August 7 – August 18 1997: the S&P made a 7% correction on no fundamental reason/news at all. This was after much of the Asian crisis was already over. You cannot predict the timing of random corrections such as this.
October 23, 1997: Hong Kong’s stock market crashes 10% after HK’s central bank hikes rates to 300% to fend off currency attacks from hedge fund managers like George Soros.
October 7 – October 28, 1997: The S&P made a 13% correction. The S&P really started to fall on October 23 after Hong Kong’s stock market crashed. The S&P crashed almost 7% on Monday, October 27 after falling the previous Thursday and Friday.
By November 1997, the Asian crisis had spread to South Korea and Japan. The Yen started to fall and the IMF approved a $57 billion bailout package for South Korea on December 3. But beginning on October 28 the S&P completely ignored foreign problems and is rising once again. This is the problem with using foreign problems to predict S&P corrections. A lot of times the S&P will bottom before the foreign problems are over.
Problems persisted until the end of January 1998. From November 1997 – January 1998, the S&P bounced around near its all time highs. Then when Asia’s problems were mostly cleared up by the end of January, the S&P started to soar in February 1998.
This pattern is very common throughout U.S. stock market history. The S&P’s big corrections often bottom on a technically oversold levels and then bounce. Then the S&P swings in a sideways range near its all time high. Then when the problem is over, the S&P soars.