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Cyclical Nature of Stocks

Discussion in 'ASX Stock Chat' started by kid hustlr, Oct 6, 2018.

  1. kid hustlr

    kid hustlr

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    Hi,

    Something which has been on my mind of late is how certain stocks perform in certain environments. Obviously these are not hard and fast rules however there are some consistencies.

    When I refer to cycles I'm referring to two major types:

    1. Monthly / Seasonality
    2. High Interest Rate Environment vs Low

    I was just wondering if anyone had done any work or could guide me in the direction of some reading regarding the 2 points above.

    Quite often I'll hear things like 'rotate into materials and out of telcos/property' when rates are on the rise or 'sell in May & go away'.

    I'm thinking it might spark some trade ideas for me.
     
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  2. InsvestoBoy

    InsvestoBoy

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    Go to google images, search "sector rotation stockcharts" you can see an idealised sector rotation chart.

    Some sectors are more sensitive to interest rates than others, you can use Primary Component Analysis to quantify it or your intuition, for example financials returns are primarily driven by Net Interest Margin.

    Obviously there are also "cyclicals" sectors, which outperform when the economy is up and underperform when the economy is down.

    Watch this video from Ray Dalio for intuition on cycles.



    There are lots of different cycles, think of currencies cycle influencing export competitiveness, retail demand influenced by oil prices (commodity cycle), so on and so forth. This is a good chart showing commodity cycle:

    http://2oqz471sa19h3vbwa53m33yj.wpe...2017/07/incrementum-commodities-vs-sp500-.jpg
     
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  3. InsvestoBoy

    InsvestoBoy

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    CanOz likes this.
  4. CanOz

    CanOz Home runs feel good, but base hits pay bills!

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    Really great to see you posting again....Forever the IT guru and most recent, the quant....hide no more my friend...
     
  5. HelloU

    HelloU

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    As well as that you can do individual stocks (back to 10 years) showing monthly variances at places like .....maybe shortman (if your current broker cannot provide). But keep your brain in gear to make allowances for macroeconomics when looking at those.
    It is a real thing.
     
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