BUSINESS CYCLE AND INDUSTRY PERFORMANCE 1

BUSINESS CYCLE AND INDUSTRY PERFORMANCE 1

As we all know that different industries perform differently depending on what part of the business cycle the economy is in.

Though at present there are signs of stabilization, including a recovery of stock markets, a decline in interest rate spreads, improved business and consumer confidence but the situation still remains uncertain and significant risks remain to economic and financial stability.

Now the hundred million dollar question is that what an investor should do when it comes to investing in stock market.

However, there are so many theories available guiding an investor regarding investment in stock market.

Through this article some guidance are forwarded regarding how business cycles are related to Industry performance thereby making one understand how one can use the study to make out the maximum from the stock market.

The following relationships have generally been observed between industry performance and the stage of the economic cycle:

a) At the economic trough, industries that supply consumer durable goods tend to bottom as market participants anticipate an economic recovery.

b) As the economy recovers, businesses begin to expand and therefore industries that provide capital goods tend to do well.

c) During the peak of the cycle, industries that provide basic materials tend to do well as the overheating economy puts an upward pressure on the prices of raw materials.

d) Once the economy begins to decline (or enters a recession), industries that supply consumer staple products begin to do well as their sales are largely unaffected by economic downturns.

e) As the economy nears the end of its decline, financial services industries begin to do well as the rate of bankruptcies stabilize and interest rates reach their cycle lows.

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