According to the U.S. National Bureau of Economic Research (NBER), the "Great Recession" began in December 2007 and ended in June 2009. Eighteen months hardly constitutes a lengthy economic contraction. Just ask Portuguese and Spanish citizens whose countries have never quite recovered from the slump that began in the U.S. and spread across the globe. In fact, over the last five years, many might say that they’ve experienced a modern-day depression.
Perhaps, then, the severity of the 2007-09 downturn is the rationale for the term's enduring description. Or maybe the sub-par economic growth that has occurred since 2009 provides us with enough of a reason to question the turnaround's durability. Either way, the ghosts of the Great Recession haven't departed from our collective psyche.
Need proof of the Great Recession's endurance? Simply ask yourself if Americans would be as eager to buy homes or cars were it not for the Federal Reserve's manipulation of interest rates. Indeed, the Fed's zero interest rate policy combined with its unconventional quantitative easing explains why our gross domestic product (GDP) has averaged 2% annually over the last threeyears. (Strangely enough, it may also be a contributing factor behind why America is not able to grow at 3% annually.)
One might think that if the Great Recession ended four years ago, the U.S. central bank would be able to end its policy of electronically creating dollars and subsequently buying U.S. Treasury bonds. Yet the mere mention of the Fed "tapering" bond purchases caused a ripple effect across most assets along the risk spectrum. Hardest hit? Exchange-traded funds with conspicuous yields -- funds dedicated to real estate investment trusts, high yield corporate bonds and emerging market debt. Even one of the more durable asset classes of the last few years (i.e., U.S. common stocks) was subject to capital depreciation and volatile price swings.
Lately, popular U.S. stock ETFs have been running into technical resistance in their attempt to reclaim all-time highs. Trendlines that once served as support for those ETFs are currently acting as impediments. For example, the SPDR S&P 500 Trust (NYSEARCA:SPY) used to bounce higher off of its 50-day moving average; today, the same trendline is more like the Great Barrier Reef.
The narrative is not much different if one chooses to look at other popular benchmarks. SPDR Dow Jones Industrials (NYSEARCA:DIA), PowerShares NASDAQ 100 (NASDAQ:QQQ), and even Vanguard Total Stock Market (NYSEARCA:VTI) are dealing with comparable headwinds.
It would be far too cavalier to suggest that U.S. stock ETFs are incapable of overcoming near-term resistance. That said, if the only major asset class to gain ground in the second quarter buckles at the feet of bearish technical traders, the next few months could be painful ones for over-exposed investors.
Most clients of my Registered Investment Adviser, Pacific Park Financial, Inc., still maintain a substantial allocation to broader U.S. Stock ETFs like iShares Russell 1000 (NYSEARCA:IWB), Vanguard High Dividend Yield (NYSEARCA:VYM) and iShares Mid Cap Value (NYSEARCA:IWS). High yielders with sustainable growth like UBS E-Tracs Alerian MLP (NYSEARCA:MLPI) also figure prominently. In contrast, stop-limit loss orders raised our overall cash position when we sold some or all of our interest in funds like PowerShares EM Sovereign Debt (NYSEARCA:PCY) and Guggenheim Multi-Asset Income (NYSEARCA:CVY).
The plan going forward is quite simple. As market-based forces reveal interest rate trends as well as the economic impact to corporations and consumers, we expect to put cash back to work in areas that show promise and relative strength. If there is further erosion of market confidence, however, we would hold a larger-than-usual amount of cash until volatility and uncertainty subside.
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site.