Until now, market timing as it applies to successful investment decision-making has been an elusive, at times vague instrument. This book provides a clear, relevant model for using the business cycle as a tool for timing investments. At last, here is a clear framework for assessing returns at different stages of the business cycle, and for determining the timing relevance as it relates to stocks, bonds, mutual funds, other specific investments and general asset allocation. A solid and dynamic approach.

JON GREGORY TAYLOR is the Chief Investment Officer at Commonwealth Funds Management (CFM), an international investment firm based in Melbourne, Australia. He has held principal positions at First Chicago Investment Advisors, Brinson Partners, Continental Bank, and Manufacturers Hanover. In addition, he has served as an international economist in the offices of the U.S. Treasury Department.

INTRODUCTION

1

(8)

Business and Growth Cycles

2

(1)

Monitoring Economic Cycles

3

(1)

Phases of the Business or Growth Cycle and Asset Returns

4

(1)

The Stock Market and Economic Cycles

4

(1)

The Bond Market and the Business Cycle

5

(4)

CHAPTER 1 FINANCIAL MARKETS AND THE BUSINESS CYCLE

9

(12)

Phases of the Business Growth Cycle and Asset Returns

10

(3)

Economic Fundamentals and Asset Prices

13

(2)

Relative Performance of Equities vs. Bonds

15

(2)

Historical Perspective

17

(2)

Comparative Global Returns

19

(1)

Selected References

20

(1)

CHAPTER 2 BUSINESS AND GROWTH CYCLES

21

(12)

Business Cycles

21

(5)

Growth Cycles

26

(2)

Global Business Cycles

28

(1)

Selected References

29

(4)

CHAPTER 3 MONITORING THE BUSINESS CYCLE

33

(10)

Sustainable Real Growth Rate and the Output Gap

33

(4)

Growth Cycle Phases

37

(4)

Selected References

41

(2)

CHAPTER 4 KEY U.S. ECONOMIC INDICATORS AND THEIR INTERPRETATION

43

(26)

Business Cycle Indicators

44

(2)

Output, Production, Orders, Inventories, Sales and Business Conditions

46

(7)

Labor Force, Employment and Unemployment

53

(2)

Consumer Spending, Personal Income and Consumer Attitudes

55

(2)

Prices, Wages, Labor Costs and Productivity

57

(3)

Corporate Profits

60

(1)

Housing and Construction

61

(1)

International Accounts

61

(2)

Monetary and Credit Aggregates

63

(1)

Federal Government Finances

64

(1)

Selected References

65

(4)

CHAPTER 5 THE STOCK MARKET AND THE BUSINESS CYCLE

69

(20)

Stock Market Returns and the Growth Cycle

69

(3)

Price versus Dividend Returns

72

(2)

Impact of the Business Cycle on Corporate Earnings and Profits

74

(10)

Inventories, Monetary Policy and Corporate Profits

84

(2)

Impact of Interest Rates on the Stock Market

86

(1)

Selected References

87

(2)

CHAPTER 6 SECTOR ROTATION WITHIN THE STOCK MARKET

89

(38)

Methodology and Framework

91

(1)

GDP Growth-Sensitive Sectors

92

(7)

Growth and Interest-Sensitive Sectors

99

(2)

Interest-Sensitive Sectors

101

(3)

Stable Growth Defensive Stocks

104

(3)

Growth Stocks

107

(4)

Selected References

111

(16)

CHAPTER 7 GLOBAL EQUITY MARKETS

127

(20)

Relative Market Performance and the Global Economic Cycle

127

(1)

The Rationale for Investing in Foreign Equity Markets

128

(1)

Global Business Cycle

129

(5)

Monitoring Global, Regional and Individual Country Business Cycles

134

(3)

Regional and Country Cycles

137

(10)

CHAPTER 8 SEASONALITY IN GLOBAL EQUITY MARKETS

147

(16)

Seasonality in the Anglo-Saxon Equity Markets

148

(4)

Seasonality in the Continental European Equity Markets

152

(2)

Seasonality in the Asian Equity Markets

154

(9)

CHAPTER 9 THE BOND MARKET AND THE BUSINESS CYCLE

163

(26)

Bond Market Returns and the Growth Cycle

164

(4)

Transmission of Monetary Impulses

168

(4)

The Taylor Rule, Fed Policy and the Federal Funds Rate

172

(3)

The Growth Cycle, the NAPM Index and the Federal Funds Rate

175

(3)

The Yield Curve and the Growth Cycle

178

(5)

Bond Market Returns and Changes in the Level and Shape of the Yield Curve

183

(1)

Nominal versus Real Interest Rates

184

(1)

Appendix 9.1 Term Structure of Interest Rates

184

(2)

Selected References

186

(3)

CHAPTER 10 GLOBAL BOND MARKETS

189

(12)

Global Bond Market Integration

189

(2)

Real versus Nominal Interest Rates

191

(4)

Spread Relationships between Markets

195

(2)

Interest Rates and the Inflation Premium

197

(2)

Yield Curve Slope

199

(1)

Selected References

200

(1)

INDEX

201

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Investment Timing and the Business Cycle

9780471188797

0471188794

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