Late Cycle Investments
Since the end of a business cycle usually ends with a recession, it's also useful to understand what lurks on the horizon. Recessions have historically been the shortest stage of a business cycle, lasting just under a year on average and with stock prices falling an average of 15% per year.
As growth shrinks, stocks sensitive to the health of the economy fall out of favor and, as in the later stages of the business cycle, defensive stocks perform better. This includes stocks of companies that sell products such as toothpaste, electricity, and prescription drugs, which consumers are unlikely to cut back on despite the economic downturn. As the economy shrinks, the profits of these companies are likely to be more stable than others. In fact, Daily necessities The sector has a perfect track record of outperforming the broader stock market during economic downturns, and utilities and health care companies have also benefited from economic downturns because of their high dividend payouts.
Interest rate sensitive stocks, including financial, industrial, information technology and real estate companies, have generally underperformed the overall market during this phase.
Investment Grade Corporate and Government Bonds Because interest rates typically fall during economic downturns, they have outperformed stocks and cash during most economic downturns.
