snoopytyping_800x60047.jpg

There will probably be dissention; however, the business cycle is alive and well. Much work was completed by Schumpeter, Kondratieff, Irving Fisher and numerous others. This article again was originally posted on the “Fly on Wall St” site, just thought I would rescue it from there.

The business cycle has an important bearing upon financial markets and the stock market in particular.

Cycle Stage……..Recession…..Early Recovery……Recovery……Early Recession

Consumer………..Reviving………….Rising……………..Declining………Falling
Industrial………..Bottoming……..…Rising……………Flat………………Falling
Interest………….Falling…………….Bottoming…………Rising…………Peaking
Yield Curve……..Normal………Steep………………Flattening………Inverted

Early expansion
Technology, Transportation

Middle expansion
Capital Goods, Basic Materials

Late expansion
Basic Materials, Energy, Consumer Staples

Early Contraction
Utilities, Financials

Late Contraction
Financials, Consumer cyclicals

How then has the S&P500 performed across the following timeframes? The performance statistics are from November 2007

Timeframe…………………52weeks……….….YTD……..3months……..…..1month
Technology……………….12.72%……….11.6%………..1.4%……………[-6.1%]
Financials……………..…[-14.6%]……. [-17.6%]………[-9.6%]………..[-15.2%]
Health Care………………7.5%…………….4.8%…………2.4%………….[-3.9%]
Industrials…………………13%…………….11.2%……….[-0.2%]…….…..[-7.1%]
Consumer Staples………….9.2%………..6.8%…………..2.3%………..[-0.4%]
Energy…………………….28.5%……………27%…………..10.6%………..[-1.8%]
Consumer Disc….….[-8.5%]……….[-11.3%]………..[-7%]…………..[-10.3%]
Utilities……………………17.4%…………..14%…………..5.4%…………..1.4%
Materials………………….23%……………..19.6%………..6.4%…………..[-4.3%]

With the odd exception, we can observe that the theoretical business cycle correlates reasonably well with reality.

Energy and Utilities have been the strongest which we would expect at this stage of the business cycle which is the late expansion phase.

Financials are currently the topic-de-jour and are in point of fact indicating that the market may well be entering the early contraction phase. Consumer cyclicals, or discretionary are also showing confirmatory movement.

Therefore we can add the sector analysis to the overall market analysis of the first post and reassess the picture once again.

Advertisements