Showing posts with label Stock market cycle. Show all posts
Showing posts with label Stock market cycle. Show all posts

Friday 23 December 2016

The Market as a Leading Indicator

Investors use the economic outlook

  • to get a handle on the market and 
  • to identify developing industry sectors.


It is important to note that changes in stock prices 

  • normally occur before the actual forecasted changes become apparent in the economy.


Indeed, the current trend of stock prices 

  • is frequently used to help predict the course of the economy itself.




Investors in the stock market tend to look into the future to justify the purchase or sale of stock.

If their perception of the future is changing, stock prices are also likely to be changing.

Therefore, watching the course of stock prices as well as the course of the general economy can make for more accurate investment forecasting.

Thursday 26 November 2015

The complex relationship between stock market cycle and the economic cycle























The above depicts the economic life cycle for various business industries. 

The stock market reacts ahead of the economic cycle.

The idea is that our economy goes through periods of growth and decline as products, services, and business occur that spark consumer spending or lack thereof.

The eleven basic industries are annotated and noted as to where most successful in the economic cycle.

Tuesday 23 August 2011

Economic Cycle versus Stock Market Cycle




Sam Stovall's Sector Investing, 1996 states that different sectors are stronger at different points along the business cycle. The table below describes this theoretical model throughout the business cycle.
Stage: 
Consumer Expectations: 
Industrial Production: 
Interest Rates: 
Yield Curve:
Full Recession
Reviving
Bottoming Out
Falling
Normal
Early Recovery
Rising
Rising
Bottoming Out
Normal (Steep)
Full Recovery
Declining
Flat
Rising Rapidly (Fed)
Flattening Out
Early Recession
Falling Sharply
Falling
Peaking
Flat/Inverted
The graph below, courtesy of StockCharts.com , shows these relationships and the order the key sectors respond to the economic cycle. The Stock Market Cycle precedes the Economic Cycle as investors try to anticipate how the market will react to the changes to the economy.