So as a commodity drops in price, that equity sector retreats? Say the dollar goes down, financials retreat, oil goes down, oil retreats, energy goes down, energy retreats…..like that?
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2 Responses
You sort of have the hang of it. A sector such as energy will be hot for a while and stocks in that sector will rise in price. Then if the price of oil drops, energy stocks will become very cold and other sectors will become hot, perhaps automotive and airlines but I would not bet on it. Right now financials are at absolute zero. Eventually the ones that are left will become hot again, maybe.
Posted on August 22nd, 2010 at 12:07 pm
Business operates in a cycle. Activity is slow, then things build up. Then it’s overdone. Then activity hits a trough. Then it starts all over again. Why is a long story and there isn’t space here. Just accept the economy expands and contracts.
Anyway, some industries do better at the beginning of the cycle, some in the middle and some only do well right before a recession. It doesn’t have anything to do with the availability of raw materials. Financials and health care are industry groups that don’t use much raw materials.
The idea of sector rotation is to put your money in a sector that’s about to do well and avoid the sectors that are out of favor. This used to be difficult for the average person, but now there is an ETF for each of the nine S&P sector indicies.
As far as commodities, they are dragged along by the secors that use them, rather than causing anything.
Posted on August 22nd, 2010 at 12:21 pm