Research

The business cycle approach to equity sector investing

The Asset Allocation Research Team examines how a business cycle approach to equity sector investing may add value as part of an intermediate-term investment strategy.

By: Dirk Hofschire Cait Dourney Jacob Weinstein

Updated: 2/28/2024

Key Takeaways

The business cycle, which reflects the fluctuations of activity in an economy, can be a critical determinant of equity sector performance over the intermediate term.
The business cycle approach to sector investing uses probabilistic analysis to identify the shifting phases of the economy, which provides a framework for allocating to sectors according to the likelihood that they will outperform or underperform.
For example, the early-cycle phase typically is characterized by lower interest rates and a sharp economic recovery, which tends to lead to outperformance by the consumer discretionary and industrials sectors.
Generating outperformance among equity sectors with a business cycle approach may be enhanced by adding complementary analysis on industries and inflation, as well as fundamental security research.

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The business cycle approach to equity sector investing

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