Shares Performance in Different Economic Cycles Economic Cycles

                                                                                         

As a Stock Trader it is important to understand the stages of the economic cycle and what share to invest in within a particular cycle. Economic Indicators such as Interest rates, GDP, Industrial Production etc. etc. helps to understand what direction the economy is headed and as such we look at how the different sectors behave at different stages of the economic cycle. It is common knowledge that the behaviour of the different sectors with respect to the economic cycle plays a very important role in the trading decisions of a stock trader.

During Early Expansion you find the technology sector tends to do very well and some of the industries you can find in this sector are: Computer software & services, Electronics, Office equipment & supplies etc.
During the Middle expansion the "Capital Goods" sector tends to do very well and some of the industries within this sector are Manufacturing, Heavy duty trucks & parts, Aerospace, Electrical equipment etc...

We then move onto the Late Expansion where the Energy, Basic Materials and Consumer staples sector tends to give one of their best performances.
The Early Contraction has the Utilities and Consumer Staples sector struggling to outshine each other and some of the industries within the Utility & Consumer Staples are Natural Gas, Electric Companies, Beverages, Health Care, Tobacco, Retails etc...
Financials and Consumer Cycles Sector perform best during Late Contraction. Some of the Industries under Consumer Cycles are Toys, Media, Automobiles, and Hotel/Leisure etc.

It’s no rocket science understanding why things work this way... Take for example when the economy begins to do badly people tend to drink more alcohol, smoke more and inevitably there is an increase in health issues. And when there is an increase in the demand for health services what happens? Your guess is as good as mine… the concept of demand and supply is what the stock market is all about so understanding what the economy is doing at any particular time helps you as a Stock Trader to understand what direction to trade. It is however worthy to note that as a stock trader you mustn’t use any system in isolation. Have more tools in your trader’s tool box and you would have stacked the odds in your favour and not the other way round.
For more trading tips and information visit: http://stockmarketer.blogspot.com

About the author:
Karen Fairham is a home based business operator, financial trader and maintains blogs for informational purposes. http://stockmarketer.blogspot.com

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