Market Cycles Vs Economical Cycles

The indices help the financial growth of listed companies; indices give us indications of future economic cycle. Therefore, the market operates in advance. In summary, the market cycle has a lead time of one or two quarters on the real economy. The graph above illustrates the gap between the economic cycle and the market cycle yellow blue. For long-term investors, it helps to have an idea of the sectors that beat the market during different periods.

In times of prosperity (middle-top bull), you have the total: robust growth, falling unemployment, rising wages, the credit facility. The technology sector, basic industry and capital goods will cost to investors.

 In times of crisis (early top-bear), we arrive at an inflection point. More money circulates with wage increases and low interest rates. Therefore, inflation appears like toothpaste out of its tube, which will cause a general decline in consumption. During this period, the non-cyclical sectors such as the food sector perform well. Finally, precious metals, energy and utilities benefit to the mortification of the purchasing power of households, inflationary effects.

In a recession or depression (early-late bear), households are deleveraging and they consume little, companies are restructuring according to demand and credit activity is scarce. So, we are in a vicious circle and despair reign. At stock, investors are in general, sector based discrimination favoring defensive sectors such as sustainable consumption and unsustainable and health.

 During recovery (late early bull-bear), returns for hope everything is done to break this impasse whatever means: growth is back, the activity is not shrinking consumption and restarts more beautiful. The sectors that will benefit from this new momentum are finance, health and consumer always.

 Hope this article will help you in enhancing your knowledge in the future your future stock market investments.