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February 25, 2009
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Now, I would like to provide a road map
Basic Business Cycle
The Basic Business Cycle looks like Figure 1.
Figure 1
How do you know which part of the business cycle the economy is in?
Well, its hard to tell. It can even take the official agency the National Bureau of Economic Research (NBER) over a year to confirm a recession.
http://www.peopleandpicks.com/blog/MackTheKnife/2616643/
You can see a table explaining the peaks and troughs since 1987 here:
http://www.nber.org/cycles/cyclesmain.html
Sector Rotation
Figure 2
This theoretical model is based on Sam Stovall's S&P's Guide to Sector Rotation and reveals that different sectors are stronger at different points in the economic cycle. The graph above shows these relationships and the order in which the various sectors SHOULD get a boost from the economy. Its important to remember that past performance in the stock market does not always mean future success, and a particular sector may, or may not, be in favor at any time, due to outlying factors. The Market Cycle precedes the Economic Cycle because investors TRY to anticipate economic effects.
Even if the sector rotation model cant help you identify an economic cycle, it CAN help identify sectors and stocks that merit further study.
For a current view of this model, with more explanation, click below:
http://stockcharts.com/charts/performance/SPSectors.html
Or if you prefer your information in a table format:
Etrade
http://clearstation.etrade.com/cgi-bin/Itechnicals?Event=srp&Section=redge&Refer=/redge.html
Weight, theres more
Several Do-it-yourself brokerage firms provide sector weight recommendations:
Fidelity
http://eresearch.fidelity.com/eresearch/markets_sectors/sectors/firmWeight.jhtml
Schwab
http://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/recent_commentary/schwab_sector_views.html
And if you are fortunate enough to have access to Zacks:
http://www.zacks.com/SectorIndustryClassif.php
Recommendation: Buy Sectors:
Consumer Staples: XLP
Health Care: XLV
Caveat: You could probably do better with your own analysis.
Now that you are aware of this, Im sure you can find other sector weight recommendations. If you do, please share it with the P&P Community.
If you agree, please, recommend this post.
Good Trading,
MAGE
Special recognition and thanks to JDShots and MackTheKnife
For further study:
http://seekingalpha.com/article/99924-historical-sector-weights-of-the-s-p-500
Disclaimer: Past performance does not guarantee future results. you should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
