INVESTMENT SECTORS ARE BEHAVING

As one would expect, the S&P materials sector did well during the first half of the economic cycle but in the past 66 days the sector is down 8.7%. The next sector one would expect to roll over is energy and sure enough this sector is down 2.7% in the past 66 days. The advancing sectors are out of order but Buffett's purchase in the utility sector had its effect.

In the past 66 days consumer staples were up 1.1%, health care was up 4.5% and utilities were up 5.6%. The last sector in the cycle, financial stocks were up .1%. One can use the sector information in a couple of ways. Of course one can buy into the sectors expected to do well next or one can use the information to gage when to increase equities versus bonds and cash.

My family is currently long on stocks and real estate. We are avoiding bonds and cash. Reading the cycle is not an exact science but it seems pretty clear that we are just starting the second half of the cycle. We right at the turning point from the recovery phase to the expansion phase.

Using prior cycles as measuring gages, it is easy to note that the last two turning points were in late 1986 and early 1995. The market exploded from late 1986 to October of 1987 and was then hit by sharp increases in short-term rates. Rates went up and basically plateaued in 1994 and the market exploded from 1995 to 2000. This cycle "feels" very much like the 1990's cycle, but using either of the two previous cycles, one would expect the stock market to do very well for at least 9 months. Should the utilities and financials out-perform the market, it may be time to reassess our bullish stance. Until then:

BUY THE BIG BULL! WAITING FOR PULL BACKS IN A BULL MARKET IS A LOSERS GAME!