US cyclical stocks rise

The leaders of growth in August were the shares of such companies as logistics FedEx, oil Halliburton and insurance Prudential Financial. They grew by at least 11%. Find out more with TraderHub. Incomes of companies in the infrastructure sectors of the economy (energy, transport, financial) change strictly following changes in the economic situation as a whole. And their stock prices reflect these changes (or expectations of such changes). Therefore, such stocks are called cyclical (cyclical stocks). Among the companies from the S&P 500 index, the leaders in August were the companies of the transport sector, whose shares rose by 8%, and the energy sector - plus 5.5%. At the same time, companies in these sectors are still suffering losses. For comparison, technology stocks in the S&P 500 index have risen 3% since the beginning of August, which corresponds to the growth of the index itself during this period (3.1%). The growth of cyclical stocks indicates the stabilization of the situation in the country's economy and removes the fears of investors that the market has recently been growing mainly in stocks that are subject to sudden fluctuations in value, namely the stocks of large technology companies. “There is no question that market health is defined by reach,” David Bunsen, chief investment officer at private wealth management firm The Bahnsen Group, told The Wall Street Journal (WSJ). “If the index is growing, but only owes the growth to a few companies, this is by definition a precarious position.” Small-caps vs. blue chips In 1981, the economist Rolf Bantz first showed that small-cap stocks tend to be more profitable for investors than the so-called blue chips, the stocks of the largest and most reliable companies. Some economists attribute this pattern to the higher risks associated with investing in small-caps, others believe that the point is that investors systematically overpay for big names. However, in the last decade, small-caps have ceased to bring investors the usual profit. According to the Financial Times, over 10 years, the Russell 2000 index has grown only by 150%, while the S & P 500 - by 203%, and the NASDAQ 100 - by 500%. The trend continues today: although small-caps in August grew faster than stocks of companies from the S&P 500 and NASDAQ 100 indices, since the beginning of the year they have lost 5% in price, while the S&P 500 has grown by 4, 4% and the NASDAQ 100 by 28%. However, this is only the case in the USA. In Europe, Japan and Australia, small-caps are still ahead of the blue chips, while in China they are only marginally behind. In addition to cyclical growth, shares of small-cap companies (small-caps, market value - no more than $2 billion) also show growth. An example is AMC Entertainment Holdings, the world's largest cinema chain. Quotes of the company's shares jumped in August by 37%. The Russell 2000 index, which includes 2,000 small-caps, has risen 6.6% since early August. And the Russell Microcap index (calculated for companies with a market value of no more than $300 million) rose by 8% in August. “Investors are starting to look beyond shiny objects,” Rich Steinberg, chief equity strategist at The Colony Group, told the WSJ. “They look at the dim ones in the hope that they will shine.” The rise in cyclical and small-cap stocks is accompanied by other hints of a recovery in the US economy. According to the WSJ, the weekly increase in the number of unemployed last week for the first time since March amounted to less than 1 million people. Demand for consumer goods is growing, industrial production has been increasing for the third month in a row. And while corporate earnings in the second quarter were well below last year's figures, more than 80% of S&P 500 companies performed better than expected. Analysts at Goldman Sachs last week raised their S&P 500 year-end forecast from 3,000 to 3,600 (currently 3,384).