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Stock Watch

Monday, September 1, 2008

Stock Market Cycle


The above graph provides a rough guide of the relationship between economic cycle, stock market cycle and the stock sector. Though it may not be 100% correct and reflective of what should happen to each stock sector during bull and bear market (e.g our tech sector has been in the doldrums for a long period and has not really enjoyed the bull market from 04-07), it does give you a good gauge of the sector you should focus on.
I believe we are not at the trough yet, as history always points out, there should always be a sell-off in banking stocks before we reach the trough. Our local banks (DBS, OCBC, UOB) has dropped in price, but has pretty much held up its price. There should be a furious sell-off coming up soon before we reach the trough. My guess is US is in a early-middle recession period, and the rest of the world is trailing US and should be in the early recession period. There should be at least few more months to go before US housing prices bottom out, and at least a year to go before US banks clean up their mortgage and sub-prime problems.
The graph points out that we should go for utilities, healthcare and non-cyclical consumer stocks, and I would add dividend stock to that list, and that is pretty much in line with my stock investing strategy for now. However, do note that there are always few bright sparks in each industry irregardless of the market, and do keep a look-out for them.

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