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Stock Market Sector Rotation Points to Continued Economic Recovery

Stock Market Sector Rotation Points to Continued Economic Recovery

Stock-Markets / Sector Analysis Apr 14, 2010 - 02:07 AM

 

By: Donald_W_Dony

 

Stock-Markets

 

Best Financial Markets Analysis ArticleAnalysts and economists often refer to the strength or weakness in certain key industrial groups as evidence of a recovering or declining economy. During the recovery phase of a typical business cycle, there is usually greater buying emphasis on industry sectors that reflect a more optimistic stance.

 

Consumers, which represent 2/3rds of the economy, normally begin to feel more confident about their financial position and start purchasing discretionary items. Analysts monitor this key sector during the early recovery period for signs of emerging and prolonged strength in an economy.

Stock Market Sector Rotation Points to Continued Economic Recovery

Over the past quarter, the top 10 performing industry groups provides a clear picture of a continuing recovery. The consumer is, once again, moving toward cyclicals. This action illustrates that a standard pattern of sector rotation continues to hold firm regardless of fundamental causes.

 

The best performing industries are:

 

1) Consumer Electronics..............26.06%

2) Recreation Products.................24.35%

3) Hotels.....................................24.20%

4) Mortgage Finance....................23.98%

5) Recreation Services.................20.36%

6) Electronic Office Equipt.............18.59%

7) Life Insurance..........................18.38%

8) Gambling.................................17.96%

9) Leisure Goods.........................17.62%

10) Airlines..................................16.91%

 

7-out-of-10 high performing sectors are associated with consumer discretionaries. The Mortgage Finance Index is also a peak performer which highlights renewed confidence in the U.S. housing market.

 

Bottom line: Positive strength in consumer cyclicals is a normal front runner during the business cycle. This move reinforces the outlook that a standard sector rotation model can be expected in this economic recovery and equity bull market. The next industry groups that typically show strength are transportation, technology, capital goods and basic industry (Chart 2).

Stock Market Sector Rotation Points to Continued Economic Recovery

Investment approach: As a typical sector rotation pattern appears to be unfolding, this evidence should help reinforce the concept that, though fundamental causes can alter from business cycle to cycle, the affects on industrial group movement in a bull market are normally the same. Investors may wish to look for opportunities in the next two sector groups to emerge; technology and transportation.

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Categories : Finance    Themes : Forecast Investing Cycle
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