There are various frameworks through which the business cycle can be analyzed and interpreted. The chart below is based on Sam Stovall's book, S&P's Guide to Sector Rotation. Stovall is the Managing Director, US Equity Strategy of S&P Capital IQ's Global Markets Intelligence Group. He is also Chairman of the S&P Investment Policy Committee.
None of the information below is groundbreaking, but this graphic does a good job of conveying a few key concepts with regard to longer-term investing. As we all know from experience, the economy moves in cycles. There are boom periods and bust periods which occur with regularity. During the various phases of that cycle, different sectors tend to over and underperform.
The first thing to absorb in the chart below is the offset nature between the Market cycle (red) and the Economic Cycle (green). Notice that the market cycle precedes the economic cycle. This of course represents the discounting ... Log in or subscribe to continue reading.