Economic Cycle

Broad Market Trends

Relative rankings of the sector ETFs representing the 10 largest sectors of the U.S. economy.

Bullish Sectors

Rank Name, 3 Month Return, Quote

Last updated: Tue, Dec 7 2021, 22:39 EDT

Bearish Sectors

Rank Name, 3 Month Return, Quote
Financial Select Sector SPDR (XLF)
Energy Select Sector SPDR (XLE)
Utilities Select Sector SPDR (XLU)
Technology Select Sector SPDR (XLK)
Materials Select Sector SPDR (XLB)
Industrial Select Sector SPDR (XLI)
Health Care Select Sector SPDR (XLV)
Consumer Staples Select Sector SPDR (XLP)
Consumer Discretionary Select Sector SPDR (XLY)
iShares Dow Jones US Real Estate (IYR)

Economic Recovery

The economy follows a regular cycle moving from recession to recovery and back into recession over a period of several years.

According to historical studies, when the economy starts to recover from recession, the consumer discretionary sector (cyclicals) is often the first to make gains closely followed by technology and industrials.

Increased consumer confidence in the economy also leads to increased activity in the real estate market.

Defensive Sectors

In the next wave of rotation the basic metals and energy sectors rise to the top, which often coincides with the market peak according to market cycle theory.

At that point, money starts rotating into defensive stock sectors, such as consumer staples, healthcare, and utilities, while the broad stock market indexes start to decline.

In the late phases of the bear market and the early phases of the next bull market, the financial sector can become the strongest sector.

How to Trade the Cycles

Stock market cycles precede economic cycles, but both cycles are often distorted. Consequently, market cycles cannot be easily traded based on theory alone.

Every cycle is different in its own way. Understanding the current sector trends can help investors avoid risks and maximize returns.