Investors who are selling into the strength of this market are not moving to cash, but rather redeploying their capital to other sectors and investments. As we've discussed, one way to discern the actions of investors is to look at relative sector performance. The chart below shows the relative performance of consumer discretionary stocks to consumer staples.
The economy always moves in cycles, regardless of central banks' attempts to minimize down cycles. During up cycles, consumers have more money to spend on "discretionary" items and consequently investors allocate money to those types of stocks in advance of the cycle. During down cycles, investors understand that discretionary items will take a hit but consumers will continue buying "staples" that are required for their general well being. Anticipation of a down cycle results in money flowing out of discretionary stocks and into safe haven consumer staples stocks.
Below we can see the continued, and perhaps ... Log in or subscribe to continue reading.
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