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What made the economic expansion from 2002-07 so strong was the fact that the global economy was running with ‘all cylinders firing’ in terms of the major regions all participating. The fact that the U.S. was adding significant debt on at the same time made the expansion even more robust, but also helped to make the downturn that much worse when it eventually came in 2008. Since the financial crisis ended in 2009, the global economy has been expanding, but not nearly at the same rate as prior to the crisis. China was actually the first to move in 2009 as they instituted massive capital spending which, in turn, helped the rest of the global economy. That is why the resource sector came out so strongly in 2009/10. The U.S. economy, driven by massive government spending initiatives and record low interest rates, took the global growth baton from China and kept things moving ahead, but at a much more subdued pace. Then the Euro-zone threw a wrench into global recovery story in 2011 as the Greek economic crisis brought more attention to shaky sovereign debt positions in many southern European nations, including Portugal, Italy and Spain (giving rising of course to the ‘PIGS’ nomenclature). The global recovery saw another hiccup in 2012 when Chinese growth started to slow down after the government clamped down on the expansion in the housing sector, which had driven inflation in China to over 6%, versus their targeted maximum of 3%. So while the move to record low interest rates in most of the world started to drive investor funds out of cash and bonds and into stocks, the move was a tepid one at best, since most investors remained unconvinced that the global economy was truly on the mend. The stock market winners over the past two years had been the defensive stock groups (utilities, consumer staples, telecom) where slow growth, high dividend yields and non-volatile earnings are trademarks.
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