Through the life of the business cycle different sectors perform better than others. The different phases of the economy favour different sectors here is an overview:
RECESSION
Hot Stocks
- Consumer staples (food, forestry)
- Utilities (gas, electricity, energy)
- Large company stocks outperform Monetary Indicators
- Short term interest rates falling
- Long term interest rates falling
- Reserve Bank bias towards easing
Economic Indicators
- GDP contracting
- Inflation flat or down
- Manufacturing sector low and falling Sentiment
- Deflation worries
- Bank & Insurance adverts emphasise security
- Newspaper headlines emphasise layoffs
- Consumer confidence falling
EARLY RECOVERY
Hot Stocks
- Consumer cyclicals (autos, retailers)
- Technology (software, computers)
- Industrials (factory equipment)
- Small companies outperform Monetary Indicators
- Short term interest rates flat
- Long term interest rates flat
- Reserve Bank stops easing
- Difference between short-term and long-term interest rates decreasing
Economic Indicators
- GDP shows modest gains
- Inflation flat
- Manufacturing rising Sentiment
- Earnings worries still common
- Bank & Insurance adverts emphasise safety
- Newspaper headlines emphasise layoffs
- Income investments in vogue
- Consumer expectations rising
MID-CYCLE
Hot Stocks
- Technology
- Consumer cyclicals
- Large company stocks start to outperform Monetary Indicators
- Short term interest rates flat
- Long term interest rates rising
- Reserve Bank neutral
- Difference between long-term and short-term interest rates widening
Economic Indicators
- Factory capacity rising
- Hourly wages rising
- Manufacturing strong
Sentiment
- Inflation worries increasing
- Bank & Insurance adverts emphasise gains
- Sector funds popular
- Consumer confidence rising
LATE-CYCLE
Hot Stocks
- Energy & Technology
- Basic materials
- Large company stocks outperform Monetary Indicators
- Short term interest rates rising
- Long term interest rates rising
- Reserve Bank bias tightening
- Short term interest rates higher than long term rates
Economic Indicators
- Factory capacity above 90%
- Hourly wages rising
- Manufacturing slowing Sentiment
- Momentum (high growth) stocks popular
- Bank & Insurance adverts emphasise gains
- Newspaper headlines emphasise the word “boom”
- Consumer expectations falling
Rob Miraglia, Trading and investing has been part of my life I have dedicated 6 years t developing methods and specialist indicators to assist with business cycle selection and pin pointing moves in the market before they occur. At http://www.swingtradinglab.com/ we have specialist indicators that have been developed to achieve these outcomes.
Leave A Reply