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Portfolio > Economy & Markets > Economic Trends

What Could Derail the ‘New Bull Market?’

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The recession is over!

To many Americans, this doesn’t make sense, but according to the National Bureau of Economic Research (NBER), the Great Recession ended in June 2009.

Here’s how NBER defines recession, according to a recent press release: “A recession is a period between a peak and a trough. During a recession, a significant decline in economic activity spreads across the economy and can last from a few months to more than a year.”

Economic activity is the key to declaring the onset and end of a recession. 

“The committee does not have a fixed definition of economic activity,” said the NBER in a statement. “It examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economy-wide employment, and real income.

“The committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve's index of industrial production,” the NBER added.

Has economic activity improved?

Unemployment: In June 2009, 16.5% of Americans were jobless. In August 2010, 16.7% of Americans were jobless.

If the candor of those numbers surprises you, it’s based on the U-6 figures published by the Bureau of Labor Statistics. Even the more commonly known U-3 number increased from 9.5% in June 2009 to 9.6% in August 2010.

Real income: According to a new study released by the Census Bureau, 1 in 7 Americans lives in poverty.

The overall poverty rate climbed to 14.3% or 43.6 million people, the highest since the 1960s. The poverty level for 2009 was set at $21,954 for a family of four. 

Imagine what the poverty rate would be if these households weren’t receiving continually extended unemployment checks.

GDP: Just a few weeks ago, the government revised – in this context revised means lowered – the GDP numbers for 2007, 2008 and 2009. GDP for 2007 was revised down from 2.5% growth to 2.3%. The 2008 decrease was lowered from 1.9% to 2.8% and 2009 growth was revised up from a 0.1% to a 0.2% increase.

As per the above data, economic activity has decreased since June 2009. So why are stocks rallying?

Perception is probably the most persuasive and least reliable force to influence our decisions. Like a caterpillar, perception morphs from its humble beginning as a disrespected and misunderstood line of reasoning to a popular and crowd-pleasing mass movement.

For example, the March 2009 “buy alert” by the ETF Profit Strategy Newsletter was met with mockery and disbelief. A year later, this once scorned idea had morphed into a movement with mass appeal.

By April 2010, there was no question that the bull market was over. In fact, by many measures, investors were more optimistic about American’s future prospects than in the year 2000 or 2007.

Two weeks before the April 2010 high watermark was reached, the ETF Profit Strategy Newsletter warned: “The message conveyed by the composite bullishness is unmistakable bearish.” Since the May 6 “Flash Crash” we’ve been caught up in a roller coaster of emotions as the market zigzagged from support to resistance.

The final jury is still out on what’s next, but we know that perception can change at a whim. Don’t misinterpret the current bullishness as a reliable buy signal.

To navigate such treacherous waters, the ETF Profit Strategy Newsletter provides safety and target levels that help narrow down the market’s path, along with the ultimate target range and semi-weekly updates.

Since NBER likes to take its sweet time, we may have already entered the next recession and don’t even know it. According to the NBER, this is a definite possibility.


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