Snatch Fast Cash Using This Key Economic Cycle
The current bull market and economic expansion are both the 2nd-best ever in terms of longevity, as I pointed out in a previous Wealth Watch article.
Naturally, considering these twin milestones, everyone is asking the same $64,000 question these days.
When will it all come to an end? And will it end badly?
Pundits in the financial media are falling over themselves to make fearless forecasts about when the bear market and next recession will begin.
Spoiler alert… At the end of almost every business cycle, the bear market starts first, followed months later by a recession.
But… Not every bear market leads to a recession.
Let’s be perfectly clear.
Any pundit who says they can predict the next bear market or recession with near perfect precision is fooling themselves, or worse, trying to fool you.
Don’t buy the hype.
As complex as financial markets and the interconnected global economy is today, there are way too many moving parts to make 100% accurate forecasts like some “experts” claim to be able to do.
Forget those fearless forecasts.
Instead, to figure out where we are in the current business cycle, simply listen to what the market is saying in real-time.
It’ll give you all the insight on how close we’re getting to the end of the line that you need. Here’s how.
Source: Fidelity Investments
First, we’ll define what “business cycle analysis” means.
The typical business cycle has four phases: Early recovery stage, mid-stage expansion, late-stage expansion and contraction (recession).
Here’s the key to understanding which phase of the business cycle we’re in now, and therefore, how close we may be to the end of the line.
The various economic sectors of the stock market perform differently depending on the phase of the business cycle.
In the early recovery stage, depressed, economically sensitive sectors tend to perform best. This includes industrials, financials and discretionary stocks.
When the economy reaches mid-stage at peak growth, sectors with strong profit growth like technology tend to outperform.
As the business cycle matures, the pace of economic growth slows, interest rates rise and inflationary pressures can build.
In this phase of the business cycle natural resource sectors, including energy and basic material stocks, tend to perform well due to rising commodity prices.
Defensive sectors like healthcare and consumer staples also tend to rise to the top in terms of performance.
And as a recession nears, defensive sectors tend to shine, including healthcare, consumer staples and utilities.
Now, keep in mind the graph of above is still hypothetical representation of the business cycle. Every cycle is a little different from the previous one.
Still it’s a very useful tool and Fidelity’s analysis shows we’re smack in the middle of a transition phase from mid- to late-stage expansion. And I think they’re pretty close to the mark.
The increased volatility we’ve seen in stocks this year is a classic sign of an economy in transition.
In my next article, we’ll dig deeper into what this all means for specific sectors and take a closer look at recent performance trends.
This will allow us to better hone in on exactly where we are in the cycle right now.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch