Defensive and cyclical stocks change financial expectations, leaving analysts in disagreement
Investments thought safe for years struggled and others often volatile and dependent on large-scale economic factors improved, leaving financial experts baffled on the futures of cyclical and defensive investments. 2018 has been a topsy-turvy year for the financial world and advisors disagree if this is a flash in the pan trend or a more long-term condition.
Investments that have a slower growth, but are more stable are considered defensive investments.
The goal of a defensive portfolio is to reduce the risk of principal loss by choosing safer stocks and bonds, thus putting money into your pocket. Traditionally, sound advice, but this year saw losses in telecommunications, real estate, and other defensive sectors.
Cyclical stocks such as industrial, and financial that offer higher risks, but greater profits are often a roller coaster as they react to the economy and world events.
These stocks improve during times of strong economies because they are often discretionary expenses that people make then they can afford it such as technology. These sectors outperformed the market and were less volatile throughout the year.
Will The Trend Continue?
The big question for investors is will the trend continue or will it shift to the more predictable and safer defensive stocks. The biggest factor is how the economy and world events change in the coming months. Domestically, the gross national product is expected to continue modest growth this year and next. This bodes well for cyclical stocks, but some investment firms believe the cycle of profit may be ending.
Changes in the peak rate of change and when the yield curve inverts may spook investors to switch to defensive sectors later this year. Still, it won’t be a full tilt-shift and cyclical investments will likely continue to grow for the remainder of the year until there is a more dramatic shift to defensive.
In essence, there will be a shift eventually, but until then grab a few defensive investments in your portfolio for safety, but don’t abandon your cyclical investments.