Posts Tagged ‘investments’
Sunday, October 25th, 2009
Oil companies’ relative profits also peak during a recession because an economic downturn is usually accompanied by high oil prices. Utilities have a noncyclical business profile and they are subject to regulated pricing. They will realize their profit peaks relative to the market during a later stage of an economic downturn.
Consumer staples is a noncyclical sector and hence the profit peak relative to the market is reached towards the end of a recession. Profits are not robust but consumers cut spending on large discretionary purchases while the demand, for example, for food and beverages remains relatively stable across the whole economic cycle.
Group sectors according to their change in profits during recession and recovery. The profits of cyclical sectors will fall in recessions and rise during a recovery. On the other side, the profit cycle of defensive companies is countercyclical. Profits will rise in recessions and they will tend to fall in recoveries. Some industries experience structural gains which means that their profits rise during recession and recovery. Other industries suffer from structural losses which means that they realize falling profits in recession and in recovery as well. Those are industries which reached a declining stage in their industry life cycles.
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