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Foreign Factors Sector Rotation
Sector Rotation Selecting Industries in line with the stage of the business cycle
Peak – natural resource firms
Contraction – defensive firms
Trough – equipment, transportation and construction firms
Expanding – cyclical industries Economic activity oscillates with peaks and troughs as a direct result of business and consumer expenditures, inflation and interest rate fluctuations. The stock market reacts differently at different phases of the business cycle. As the business cycle moves toward its peak with increased economic activity, higher demand for goods and services leads to price increases and inflation. Higher inflation prompts the Federal Reserve to tighten the money supply increasing interest rates to control inflation.
The rise in interest rates slows economic activity sometimes resulting in a recession.
Economic activity is measured by the GDP
Economic expansion and contraction is measured by changes in the GDP.
A decline in the GDP for two or more consecutive periods constitutes a recessio...
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This document was uploaded on 02/05/2014.
- Fall '14