| 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
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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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