As of recently, I hear a lot of talk by the financial industry about entering into a new “market cycle” (e.g. Fidelity podcast etc.). Basically, it’s now supposed to be “mid to late cycle” with a shift from growth stocks to value stocks, or from “cyclical” stocks (discretionary and financial companies) to “defensive” stocks (eg utilities, consumer staples, energy).
Personally, I don’t get this. How can one predict which cycle we’re in? Do cycles always have the same effect on stocks, no matter the underlying complex and fluid financial and economic factors? How are we to know how long a cycle lasts?
To me, it seems like marketing mumbo-jumbo, a justification of active management by the finance industry (sector rotation blabla), and maybe a hope for a self-fulfilling prophecy (look, we perfectly predicted our self-proclaimed cycle). I don’t think this theory is backed by science.
Wikipedia: However, many academics and professional investors are skeptical of any theory claiming to precisely identify or predict stock market cycles. Some sources argue identifying any such patterns as a “cycle” is a [misnomer], because of their non-cyclical nature.
As far as I know, in theory there are market cycles, and it is empirically proven, that some sectors peforms better in different parts of the cycles.
It is probably also possible to know in which phase we are right now.
The big BS are the people stating they can predict when we will switch to the next phase, and thus rebalance on time to obtain an overperformance. Nobody knows that.
I also asked myself: is one “late cycle” always the same as another “late cycle”? What’s the exact definition of it? If now’s a late cycle: Have we ever been in the same situation like now? I mean, looking at the past can never predict the future. That’s why backtesting to draft new strategies is mostly mumbo jumbo aswell imho
That’s the thing: we’ll be able to say in maybe two years. Today we can’t, apart from a general feeling. People were already talking about a late cycle in 2019. As they did in 2018, in 2017, in 2016 and so on. You just can’t tell with certainty.
If anybody could tell, they wouldn’t be on TV bragging about it. They would use that knowledge with their own assets.
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