An Indicator That Assesses Which S&P 500 Sectors Are Likely To Outperform


  • Successful investment performance should consider economic trends.
  • The performance of the 11 sectors of the S&P 500 and bonds is sensitive to changes in the growth of the economy.
  • The business cycle is a useful tool to select the best-performing ones.

This article focuses on the performance of the eleven S&P 500 sectors and bonds during three business cycles as measured by the Peter Dag business cycle indicator - updated in each issue of The Peter Dag Portfolio Strategy and Management.

Will the Fed raise interest rates? What about the response of OPEC to lower oil prices? Which form of energy will be preferred by the new Administration? The money supply is soaring - it must have an impact on inflation, interest rates, and economic growth. The wars around the world also create a sense of uncertainty. Of course, there is China with its powerful navy and global ambitions. Nuclear wars are always a risk with Iran flexing its muscle. The market may be in a bubble fueled by stimulus and excessive debt.

These are all important issues. It is difficult to deal with them and develop a proven and reliable investment strategy. It is hard to quantify their impact on markets on a weekly or monthly basis. Yet, there is a group of individuals - the business decision makers - that filters these events, looks at market conditions, at the domestic and international competition, and makes business decisions on a daily basis to maximize the performance of their enterprise.

They must produce the goods consumers need. They must have inventories ready on the shelves in the right quantity to make a profit. This is the bottom line.

If inventories are too excessive compared to sales, production must be cut to safeguard earnings. If inventories are too low compared to sales, production must increase to re-stock inventories, and improve sales and profits. In the first case business slows down. In the second case business improves.

This seesaw in business decision making has a major effect on the business cycle. This seemingly simple inventory adjustment drives most asset prices.

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Disclosure: I

have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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