Making Sense of a Changing Market Environment
***Written By: Dann Mcnulty Stock Forum ID: WallStGolfer31***
The economic cycle is a very important thing to be aware of when investing in the market. Right now most economists and market analysts are predicting an economic slowdown for the US economy. A slowdown is just growth this year of the GDP lagging what is was last year. This means the economy is still expanding, but at a much slower pace than it was previously.
This slowdown in growth is fueled by consumers and businesses spending less. Since only 1/6th of all spending is done by businesses, the consumer therefore makes up 5/6th of all spending. You’ve heard it before, consumer is king.
With this in mind, how can YOU profit from it?
Well if consumers are spending less, what will they cut out? This is going to differ from person to person, but it can be summed up, and very accurately, by citing consumer discretionary. This is the stuff you as a consumer buy to satisfy your wants. This is the stuff you don’t really need. Items that are categorized as consumer discretionary will not be bought as frequently as they were in the past. This makes those companies within this sector less attractive during an economic slowdown.
On the other hand, items that we need and buy on a regular basis are still purchased as so, on a regular basis. These are things like food, basic clothing, tobacco, etc. These items are called consumer staples. Companies that produce these are valued at a premium during an economic slowdown.
Another sector that will do well during an economic slowdown because of higher valuation is the healthcare and pharmaceutical sectors. Again this is because of the inelastic demand their products and services possess.
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