{"id":7957,"date":"2019-03-11T19:23:39","date_gmt":"2019-03-11T19:23:39","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=7957"},"modified":"2022-02-26T13:07:21","modified_gmt":"2022-02-26T13:07:21","slug":"what-does-the-surprising-cyclical-stock-surge-mean","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/what-does-the-surprising-cyclical-stock-surge-mean\/","title":{"rendered":"What does the surprising cyclical stock surge mean?"},"content":{"rendered":"\n<p>The S&amp;P 500 spent a single day in bear\nmarket territory on Christmas Eve, but since then the index has rewarded\ninvestors who didn\u2019t panic. As I write this column, the S&amp;P 500 has\nsteadily rallied over +18% <sup>1 <\/sup>off the bottom, and one category, in\nparticular, has exhibited strong, noteworthy gains: cyclical stocks.<sup>2<\/sup>\n<\/p>\n\n\n\n<p>Here\u2019s what the data tells us. As you can see\nfrom the chart below, Industrials (IYJ), Financials (IYF), and Energy (IYE)\nhave all outperformed the broad S&amp;P 500 since the low on Christmas Eve. The\nIndustrials sector is on pace to outperform the S&amp;P 500 on a quarterly\nbasis for the first time in over 5 years:<\/p>\n\n\n\n<p><strong>Cyclicals have outperformed the S&amp;P 500 during the\nrally <\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/motm_cumulative_0319-1024x473.png\" alt=\"\" class=\"wp-image-7958\"\/><\/figure>\n\n\n\n<p><strong><em>Closing Price (Index) Data from 12\/24\/18 to 03\/04\/1,\nSource: Yahoo Finance<\/em><\/strong><\/p>\n\n\n\n<p><em>______________________________________________________________________________\n<\/em><\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_3-10&amp;content=stock_market_outlook_report\">Additional Data You Need to Keep an Eye On!<\/a><\/strong><\/p>\n\n\n\n<p>In addition to data surrounding cyclical\nstocks, there are other economic indicators, data releases, earnings reports,\nand factors you should watch. To help you do this, we are offering all readers\na look into our just-released March 2019 Stock Market Outlook report.<\/p>\n\n\n\n<p>This report will provide you with our\nforecasts along with additional factors to consider:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Will 2019 stay bullish?<\/li><li>Zacks global markets\u2019 outlook<\/li><li>What sectors show the best opportunity?<\/li><li>What industries within those sectors most\nmerit your attention?<\/li><li>Forecast for the S&amp;P<\/li><li>Small-cap vs. large-cap returns<\/li><li>And much more. <\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and\nwant to learn more about these forecasts, click on the link below to get your\nfree report today!<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_3-10&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_3-10&amp;content=stock_market_outlook_report\">3<\/a><\/sup> <\/strong><\/p>\n\n\n\n<p><em>_______________________________________________________________________<\/em><\/p>\n\n\n\n<p><strong><em>Why does this matter?<\/em><\/strong><\/p>\n\n\n\n<p>From a macro standpoint, cyclical stocks have\nhistorically been a useful gauge of investor confidence in the U.S. economy.\nCyclicals tend to outperform early in economic cycles when investors are\nconfident about the U.S. rebounding out of a recession and into a fresh growth\ncycle. Small-cap stocks also tend to outperform in this phase, for the same\nreasons. &nbsp;<\/p>\n\n\n\n<p>But as economic cycles wear on and get \u2018old,\u2019\ncyclicals often underperform as profitability wanes and growth rates slow. That\u2019s\ntechnically where we\u2019re <em>supposed <\/em>to\nbe in this economic cycle &#8211; currently in its 10<sup>th<\/sup> year, with a\nrecession \u201cjust around the corner.\u201d But cyclical stocks appear to be telling us\na different story.<sup>4<\/sup> <\/p>\n\n\n\n<p>Investors may have been reassured by the\nFederal Reserve\u2019s decision to pause rate increases, strong data in the labor\nmarket, and maybe some tailwinds from strong bank earnings and steady lending\nactivity posted in Q4. Even if growth slows down as expected in 2019, cyclicals\u2019\noutperformance may be telling us that the chances of a recession this year are\nlow. A good sign.<\/p>\n\n\n\n<p><strong>But\nin my opinion, there is a more important investment takeaway from this story. <\/strong><\/p>\n\n\n\n<p>Here it is: While tracking cyclicals may\noffer investors and market watchers some macro guidance, I would argue that when\nit comes to portfolio construction, investors would be better served determining their cyclical\nand non-cyclical exposure by focusing on individual company earnings \u2013 not on\nthe macro environment. <\/p>\n\n\n\n<p>In\nother words, I believe stock selection matters more than top-down decision\nmaking.<\/p>\n\n\n\n<p>The\nidea that we should own cyclical stocks early in an economic cycle and then switch\nto a non-cyclical bias late in a cycle doesn\u2019t hold water, in my view. At Zacks\nInvestment Management, we want to buy and own companies that are consistently\nprinting upward earnings estimates and\/or have attractive valuations, as\nopposed to trying to time where we are in the business cycle. If you own\nquality and you own companies that grow earnings, that to me will add more\nvalue over time than shifting between sector and style based on timing the\nbusiness cycle.<\/p>\n\n\n\n<p><strong>Bottom Line for Investors<\/strong><\/p>\n\n\n\n<p>If a\ncyclical stock is growing earnings and revising earnings higher on a consistent\nbasis, my view is that it will do well no matter what \u2018inning\u2019 of the business\ncycle we\u2019re in. The same applies to non-cyclical stocks or really any other\nequity category, in my view. <\/p>\n\n\n\n<p>Macroeconomics\nmatter, of course \u2013 knowing economic fundamentals can help an investor\ndetermine the earnings outlook for a particular sector or region, which may\nplay directly into setting expectations for corporate bottom lines. But at the\nend of the day, the bottom line for investors is that it matters more, in my\nopinion, to construct a portfolio on a company-by-company basis based on\nbottom-up analysis of earnings and other fundamentals. That\u2019s the approach that\nwe find has worked for us here at Zacks Investment Management since the\nbeginning.<\/p>\n\n\n\n<p>To give you an inside look into these and other fundamentals, check out our exclusive<strong> <a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_3-10&amp;content=stock_market_outlook_report\">Stock Market Outlook report.<\/a><\/strong><\/p>\n\n\n\n<p>This\nSpecial Report is packed with newly revised predictions that can help you base\nyour next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019\nview on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Will\n2019 stay bullish?<\/li><li>Zacks\nglobal markets\u2019 outlook<\/li><li>What\nsectors show the best opportunity?<\/li><li>What\nindustries within those sectors most merit your attention?<\/li><li>Forecast\nfor the S&amp;P<\/li><li>Small-cap\nvs. large-cap returns<\/li><li>And\nmuch more. <\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<strong><sup>5<\/sup> <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The S&amp;P 500 spent a single day in bear market territory on Christmas Eve, but since then the index has [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-7957","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/7957","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=7957"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/7957\/revisions"}],"predecessor-version":[{"id":10780,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/7957\/revisions\/10780"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=7957"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=7957"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=7957"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}