Top Down Approach to Investing

1
Top Down Approach to Investing

• Sector Rotation

2
Sector Rotation

• Investors choose stocks in specific industry
  sectors that will do best depending on the
  current and projected stages of the business
  cycle
• The underlying premise is that industries react
  differently during different stages of the
  economic cycle

3
Classifying the Sectors

• SP 500 has nine sectors
• More common
• Interest-sensitive
• Financial sector and energy do well during
  periods of low interest rates
• Consumer durables
• Consumer discretionary, consumer technology
  companies, and consumer telecommunications
  companies are very sensitive to changes in the
  economy
• Capital good manufacturers
• Materials, Industrials, and some technology and
  telecommunication companies do well later in the
  economic cycle when economic activity builds
  greater demand for business expansion
• Defensive stocks
• Consumer staples, health care, and utilities
  remain fairly stable throughout the economic cycle