Some economists have jokingly defined a recession like this: If your neighbor gets laid off, it's a recession. If you get laid off, it's a depression.
Past performance is no guarantee of future results. As economic growth stalls and contracts, sectors that are more economically sensitive fall out of favor, and those that are defensively oriented move to the front of the performance line.
These less economically sensitive sectors, including consumer staples, utilities, telecommunication services, and health care, are dominated by industries that produce items such as toothpaste, electricity, phone service, and prescription drugs, which consumers are less likely to cut back on during a recession see Exhibit 6.
The consumer staples sector has a perfect track record of outperforming the broader market throughout the entire recession phase, while utilities, telecommunications services, and health care are frequent outperformers.
High-dividend yields provided by utility and telecom companies also have helped these two sectors hold up relatively well during recessions. On the downside, economically and interest-rate-sensitive sectors— such as industrials, information technology, materials, real estate, and financials—typically have underperformed the broader market during this phase.
The merits of the business cycle approach The business cycle approach offers considerable potential for taking advantage of relative sector-performance opportunities.
As the probability of a shift in phase increases—for instance, from mid-cycle to late-cycle—such a strategy allows investors to adjust their exposure to sectors that have prominent performance patterns in the next phase of the cycle see chart. Our views on these phase shifts are presented in recurring monthly updates on the business cycle.
This may make it more practical for some investors to execute than shorter-term approaches. Additional considerations for capturing alpha in sectors Equity sector relative performance has tended to be differentiated across business cycle phases. Unshaded white portions above suggest no clear pattern of over- or underperformance vs.
Industries within each sector can have significantly different fundamental performance drivers that may be masked by sector-level results, leading to significantly different industry-level price performance see chart.
For example, during the early cycle—the phase with the most differentiated sector performance—the difference between the average relative returns of the best- and worst-performing sectors since was roughly 25 percentage points, whereas the relative performance differential at the industry level was roughly 75 percentage points.
Each industry within a sector has specific drivers that may affect performance. View Larger Image Source: Macro-fundamental industry research can identify—independently of typical business cycle patterns—variables specific to the dynamics of each industry that may affect performance.
Global business cycle analysis: When the 11 equity market sectors are ranked by their exposure to foreign revenues, information technology comes out on top and telecommunication services lands at the bottom see chart.
Short-term inflation trends tend to ebb and flow with the movement of the business cycle, but longer-term inflation trends sometimes move independently of the business cycle.
Of particular importance is whether producer prices are rising more quickly than consumer prices, and thus affecting profit margins negatively, or vice versa. Long-term secular trends that are expected to unfold over multiple business cycles can warrant a permanently higher or lower allocation to a given sector than a pure business cycle approach would suggest.
Tactical and quantitative strategies: Other short-term factors may include sector volatility, price momentum, or the implementation of new tax policies. Investment implications Every business cycle is different, and so are the relative performance patterns among equity sectors. However, using a disciplined business cycle approach, it is possible to identify key phases in the economy, and to use those signals in an effort to achieve active returns from sector allocation.
Analyzing relative sector performance Certain metrics help evaluate the historical performance of each sector relative to the broader equity market all data are annualized for comparison purposes: Calculates the geometric average performance of a sector in a particular phase of the business cycle, and subtracts the performance of the broader equity market.
This method better captures the impact of compounding and performance that is experienced across full market cycles resulting in longer holding periods.
However, performance outliers carry greater weight and can skew results. Calculates the difference in the monthly performance of a sector compared with the broader equity market, and then takes the midpoint of those observations.a project report.
on ´the impact of global recession on information technology sector in indiaµ master of business administration (finance) of sikkim manipal university of health, medical and technological science distance education wing syndicate house manipal The higher net profit margins of both the Software and Services industry and the Information Technology sector demonstrate that the companies within this industry and sector have more operating flexibility in converting their revenues into actual profit and are more able to manage their costs as sales fluctuate.
The information technology - IT as it is more famously know plays an important role in our Indian economy and today’s commercial world. The ongoing recession has left its impact on the IT industry we have discussed this in our project.
The impact of Global recession on Information Technology sector in India. The impact of recent global economic slump on Indian capital market. A comparative study of bancassurance products in banks.
A Comparative study of Equity linked Savings Schemes floated by domestic Mutual fund players. A. Jan 23, · AP IMPACT: Recession, tech kill middle-class jobs Increasingly, jobs are disappearing in the service sector, home to two-thirds of all workers. information technology and procurement have. THE GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN IT INDUSTRIES webkandii.com lakshmi (Information Technology) sectors in the world.
This paper the job particularly in manufacturing,IT and service webkandii.come impact were also seen.