How To Gain From Market Changes With Business Cycle Investing

Every economy is constantly in a state of flux, moving from one phase to another. These phases can be described as recovery, expansion, recession and slump. Understanding these phases can help an investor decide which phase of the business cycle an economy is in. Based on this understanding, an investor can optimize his/her portfolio. In effect, business cycle investing is a strategy that aligns investment decisions with the macroeconomic environment. Different sectors behave differently during different phases of the economy. Economic Cycles and Sectors The economic cycle serves as the foundation for identifying sectors that are likely to thrive or struggle. Let’s consider some typical sectoral behaviours in these four phases: Recovery During recovery, the economy begins to rebound from a slowdown, favouring cyclical stocks like industrials and some consumer discretionary stocks....