A Recession Relapse Could Be In Play And ETFs Will Falter

recession“Unfortunately, job cuts have affected every industry sector. Job cuts in the technology sector (NYSEArca: XLK) have reached the highest level in four years. Even WalMart, a low-price leader and a virtually recession proof outfit, continues to cut jobs. This trend has spilled over and continues in the entire consumer staples (NYSEArca: XLP) and consumer discretionary sector (NYSEArca: XLY). Ericsson and Pfizer are just a few companies eliminating employees at a record pace. According to a report by global outplacement firm Challenger, Gray & Christmas, U.S. employers began the year 2010 by announcing 71,482 planned job cuts, the highest tally in five months. The report, however, said that the increase in layoffs should not be seen as a sign of recession relapse,” Simon Maierhofer Reports From ETF Guide.

Maierhofer continues to say, “How do you define a recession relapse? How do you even figure a recession is over? There has been a huge disconnect between what’s happening on Wall Street and on Main Street. Since March 2009, the U.S. stock market (NYSEArca: TMW) has been steadily rising, as has unemployment. You’d expect stock prices to go up and unemployment claims to go down, but that hasn’t been the case. When putting the pieces together, it helps to understand why stocks have been able to stage a relentless ten-month rally. From October 2007 to March 2009, the Dow Jones (NYSEArca: DIA), S&P 500 (NYSEArca: SPY) and secondary indexes like the MidCap SPDRs (NYSEArca: MDY) and small caps (NYSEArca: IWM) have lost more than half their value. Financials (NYSEArca: XLF) lost over three quarters of the market capitalization.”

“Throughout the fourth quarter of 2009 stocks moved higher. Even though the major indexes gained only a few percentage points from October – January, the resilience against any bad news had transformed a record number of investors into long-term bulls. By early January, investor optimism had reached extremes not seen since 1987, 2000 and 2007 (depending on the data used). For the first time investors had more money invested in stocks than at the height of the technology boom in early 2000. For contrarian investors, this was a huge red flag. On January 15, 2010, the ETF Profit Strategy Newsletter’s Market Meter stated the following: “Dow 10,710 and S&P 1,148 might very well mark the high water mark for 2010. A major trend reversal at current prices would be consistent with all our indicators.” The market staged one more minor high two trading days later and has fallen precipitously since. Recommended ETFs like the Direxion Daily Financial Bear 3x Shares (NYSEArca: FAZ), UltraShort QQQ ProShares (NYSEArca: QID), and UltraShort Financial ProShares (NYSEArca: SKF) have gained 10%, 15% and more,”  Maierhofer Reports.

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