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The Current U.S. Business Cycle

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

HealthCare -- Drugs
HealthCare - Diversified
Electric Utilities
Retail - Food
HealthCare - Medical Products
Financial - Diversified
Electrical Equipment
Retail - Drug Stores
Household Products
Beverages - Alcoholic
Natural Gas
Insurance - Property
Beverages - Non-alcoholic
Electronics - Defense
Oil -- International Integrated 
Insurance - Multi-line and Life
Computers - Software and Services
Waste Management
Office Equipment


Review and Analysis

The US economy is currently in the EASEOFF phase.  In this phase, the year-to-year change in industrial production peaks and starts to decline.  The leading economic variables for this phase include the NAPM composite index, non-farm payrolls,  hours worked and initial unemployment claims.
 From 1980 to 1996, the EASEOFF phases have had an average duration of 7 months, but the last two EASEOFF phases lasted 11 and 13 months respectively.  The S&P 500 stock index has had average annual returns of 19.22% in EASEOFF's from 1980 to 1996, and even higher returns in more recent EASEOFF's (average annual returns of 25.43% in EASEOFF's from 1988 to 1999). 

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 investors would be wise to focus their portfolio holdings in these industry groups.

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