Stocks and the Economic Cycle: What Performs Well--and When

by Wayne A. Thorp

In the long run, a stock’s price is driven by a company’s ability to grow sales and earnings. However, many factors can dictate whether a company is successful in this venture.

As the last few years have shown, the economy can have a significant impact on a company’s financial success (or failure). Many companies have seen their earnings fall because of the downturn in the economy and, consequently, the value of their shares has fallen.

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That is not to say, however, that all stocks react the same way during periods of economic expansion or contraction. This article will explore the general characteristics of the economic cycle during its various stages. It will also examine how various industries and investment styles react to these stages and how investors may be able to use the economic cycle to their advantage when developing an investment plan.

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