Stock Market Analysis Report 5-10-18...Consumer Staples Are Taking A Beating This Year

in #bitcoin6 years ago (edited)

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In the late-stages of the economic cycle, energy and stocks of material companies do well because economic demand is still high and inflationary pressures support prices for hard assets like oil and commodities.

Source

The graph above shows the economic cycle in green and the stock market cycle in red and the best performing sectors. The center line marks the contraction/expansion threshold for the economy. Thus, in a full recovery, staples don't do well.

I first talked about sector rotation two weeks ago,

Crude Oil Analysis Report 4-23-18...Look For Oil To Continue To Rise...Target $82

Due to higher inflation, higher interest rates, lower unused capacity the demand for raw materials go up, which is why companies in the energy sector do well. However, consumer staples companies get hit because they use and convert raw materials into a finished good that you and I use as consumer. As a result, their input cost go up, directly affecting their top line sales.

Our cost as consumers go up as well, so we start to pick and use and may decide on buying the cheaper alternatives. As a result, the consumer staples companies can't pass on their higher cost to us in fear of losing more business. This is why the consumer staples sector is significantly down this year. Lets look at some of the companies in this sector and their performance this year thus far.

Kraft Heinz - down more than 20% this year.

General Mills - down more than 25% this year.

P&G - down more than 20% this year.

Kellogg - down more than 20% this year.

Some investors seek to profit from changes in the economic cycle. A sector rotation strategy entails "rotating" in and out of sectors as the economy moves through the different phases of the economic cycle. The goal of this strategy is to construct a portfolio that will produce investment returns superior to that of the overall market. I will be talking more about sector rotation strategies and introducing intermarket analysis in future post.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

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Outstanding! in total agreement. Resteeming, upvoting.

Thanks Yankee-Statman.

I have been closely looking at the sector as well, given the underperformance. I will be looking to start some positions after the market starts to cycle down. The dividend rates are becoming very enticing as well. Still too soon to go in though.

Agree, I'm itching to buy leap put options on Royal Caribbean, but didn't not get my sell signal from the overall markets yet.

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Great post!
Thanks for tasting the eden!

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