“Greater rewards, lower costs”


Investment Philosophies, Theories and Practices (continued…)


Investment Opportunities in an Economic Cycle


Most of the time, financial markets attempt to predict the state of the economy, typically six months into the future.  This means the market cycle (bull market, market top, bear market and market bottom) is usually well ahead of the economic cycle. For example, when the economy is in a deep recession, the market will look ahead at possible signs of recovery, and if it does find some evidence thereof  stock prices will start to move up.


But important to remember:  certain sectors of business profit more than others in certain stages of an economic cycle. Therefore, some investors and traders try specifically to invest in sectors which offer relative value to others in anticipating that those sectors will benefit from a specific stage of the economic cycle—otherwise known as sector rotation.


The following table describes the different stages and typical characteristics of the economic cycle. The diagram (next page) shows those business sectors that proved historically to be successful investments at certain stages of the economic cycle.


However, be warned: this is not a infallible method of investing; external factors or unforeseen events may play havoc with the eventual outcome of one’s bet on the performance of certain sectors.



Economic Cycles

Full Recession

Early Recovery

Late Recovery

Early Recession









State of the Economy

Consumer expectations have bottomed



Industrial production has bottomed




Interest rates are falling



Yield curve is normal



Consumer expectations are rising



Industrial production is growing




Interest rates have bottomed



Yield curve steeper

Consumer expectations are beginning to decline


Industrial production is flattening out at the top



Interest rates are rising



Yield curve is flattening



Consumer expectations are at their worst


Industrial production is falling




Interest rates are at their highest


Yield curve is flat or inverted