The following is the S&P 500’s chart in 2003.
*Read the entire history of the U.S. stock market here.
The remnants of the 2000-2002 bear market still remained in the first quarter of 2003.
January 7, 2003: Bush revealed a $674 billion plan to cut taxes and build infrastructure (to boost the frail economic recovery). The market does care about government policy in the short-medium term. Policy only has an impact on stocks in the medium-long term. Bush’s announcement was close to the S&P rally’s top and did not push stocks up at all. This is similar to Obama’s fiscal stimulus plan in early 2009: the S&P fell in the weeks after Obama’s plan was announced.
Q4 2002 earnings season (released in January 2003) was good across-the-board. Earnings were rising and beating expectations. However, the S&P still fell during this earnings season.
The S&P fell from January 13 – March 12, 2002. This was the final wave (also triple bottom retest) before the 2003-2007 bull market began.
This down wave was primarily driven by fears of the U.S. going to war.
By December 2002 and January 2003, it was becoming increasingly likely that the U.S. would go to war in Iraq.
By the end of January 2003, more than half of Americans in polls supported going to war with Iraq. Since Bush had already received approval from Congress in October 2002 and clearly stated that he wanted to go to war, by the end of January 2003 war was almost guaranteed.
The S&P went down on fears that the U.S. would go to war. But once war was guaranteed on March 17 2003, the S&P started to rally. This was the beginning of the bull market.
March 17, 2003: Bush ordered Saddam Hussein to resign within 48 hours or face attack.
March 18, 2003: Saddam Hussein said “no”, so war began.
March 19, 2003: U.S. started to bomb Iraq.
The S&P went up very vigorously in the first few weeks of the war.
The U.S. economy suddenly deteriorated significantly from April 2003 to early-July 2003. However, the S&P kept rallying during this time because our model said that the S&P 500 had begun a bull market. Perhaps the economic slowdown did have something to do with the Iraq war as the media explained “the war in Iraq has caused businesses to slow down hiring amidst the uncertainty”.
The rest of 2003 was very quiet in terms of economic/corporate news. Economic/earnings growth was nice and steady throughout the year. The S&P always rallies strongly when things are quiet on the news front.