CFP Surfing the Business Cycle Selecting stocks can be tough. But stock selection is much easier once you understand stock market and economic cycles.
Diversification is key.
Decide which of the market sectors to emphasize in your current portfolio by looking at the current stage of the economic cycle. A normal economic cycle lasts about four to six years from peak to peak. That means that the stock market will perk up several months before the economic cycle hits its trough. During this period, the best stock buys are in the consumer cyclical sector, that is, automobile manufacturers, building materials and retailing companies. Once the economy begins to rebound, it's time to move to the technology sector, which includes computers, software and semi-conductors.