Business Cycle Research Forms the Foundation of Hugh Johnson Advisors’ Portfolio Structuring and Management Philosophy

History teaches us that specific stock market segments and sectors predictably outperform in different stages of the business cycle. Therefore, greater knowledge about the current stage of the business cycle results in better investment decisions.

The Message of the Market

By measuring and monitoring meaningful trend changes in these important market variables, we gain a moving picture of investors’ collective risk appetite and outlook for the future. However, even collectively, investors are prone to emotional extremes. Therefore, we need a “reality check” to the “message of the market.” Our reality check is a rational analysis of forward-looking macroeconomic and monetary statistics. Examples include:

  • General stock market trend

  • Relative performance of large-, mid-, and small-capitalization stocks

  • Relative performance of the key stock market economic sectors

  • Direction of interest rates

  • Risk premiums in the corporate bond market

  • Shape of the yield curve (difference between short- and long-term interest rates)

Reality Check

Applying a proprietary blend of quantitative filters, we seek to determine where we stand in the business cycle stage by reconciling the “message of the market” with important forward-looking macroeconomic and monetary statistics and adjust portfolio composition to reflect that insight. Investors collectively synthesize all knowable information at any given time and efficiently forecast the future by signaling their collective risk appetite. To do this, we analyze several key indicators:

  • Index of Leading Economic Indicators and its subsets

  • Labor statistics

  • Index of Leading Inflation Indicators

  • Commercial loan growth

  • Monetary and liquidity growth statistics

When the message of the markets and the economic reality check align, we position our client portfolios confidently for either continuing economic expansion/bull market or downturn. When they do not align, we proceed more cautiously with a more nuanced approach that tempers our decisions.

Decades of service.
Over 100 years of collective experience.

As a Registered Investment Advisor and fiduciary, Hugh Johnson Advisors delivers client service that’s bound by discipline and integrity to the highest legal standards, providing vigilant account stewardship.