QInsight Group

The Current U.S. Business Cycle

Plunge industry groups that have historically outperformed the S&P 500 index on a risk/return basis: 


Retail - General Merchandise
Apparel
Health Care -- Medical Products 
Containers -- Metal and Plastic 
Textiles -- Apparel 
Beverages -- Non-Alcoholic 
Oil -- International 
Foods 
Semiconductors
Beverages -- Alcohol 
Retail -- Food Chains 
Railroads 
Waste Management 
Retail -- Dept. Stores 
Consumer Products 
Chemicals -- Diversified 
Cosmetics 
Chemicals 
Health Care -- Diversified 
Insurance -- Property 
Household Products 
Aerospace/Defense 
Toys 
Truckers 
Office Equpment 
Electrical Equipment 

Plunge

Review and Analysis

The US economy is currently in the Plunge phase.  In the Plunge phase, the difference between the yield on the 90-day US Treasury bill versus the yield on the 30-year US Treasury bond widens as short-term interest rates decline faster than long-term interest rates.  The adjusted monetary base begins to increase rapidly, and the 12-month rate of change in the federal funds interest rate often declines below 0.
The Plunge phases have averaged approximately 9.5 months, but they have been as short as two months and as long as eighteen months.
 From 1980 to 1996, both the stock and bond markets have had excellent returns in the Plunge phase.  The S&P 500 stock index has had an average annual return of  24.26%, and the Lehman bond index had an annual return of 22.46% in this phase. 
The industry groups that have historically outperformed the S&P 500 index on a return/risk basis in the Easeoff phase are listed in the Industry Column to the left. Of course, not every industry group outperforms the broad indexes in every phase, but an investor would be wise to focus their portfolio holdings in these industry groups.
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