Jeff Black, VP of Content and Education at Tornado, talks to John Normand, a cross-asset strategist, to gain insights into the macro factors that impact the stock markets. John highlights cyclical and structural influences as two key factors that shape the macro outlook for various sectors. Cyclical factors are those that change over the short term with variations in the overall GDP growth rate, inflation, interest rates, exchange rates, commodities prices, and geopolitical risks. On the other hand, structural factors tend to unfold over longer periods and include technological disruption, climate change, globalization and de-globalization, demographics, and economic development.
Different equity sectors are influenced by different macro factors. Cyclical sectors such as Materials, Industrials, Energy, and Consumer Discretionary are highly sensitive to the rate of global growth and interest rates. In contrast, defensive sectors such as Utilities, Staples, and Healthcare tend to be less sensitive to cyclical factors. Technology and Communication Services sectors are in the middle since they are affected by the structural mega trends, but they may also be vulnerable to rising interest rates and de-globalization.
For stock investors, it is essential to understand the macro factors that matter for their stocks and track them alongside company-specific fundamentals. The difference in equity performance in different business cycle environments can also have a significant impact on an investor’s stock portfolio. For a long-term investor, intra-year losses may not be material since stocks tend to rise over the years. However, for tactical investors who depend on trading profits, these drawdowns may be worth trying to time.
The original audio and blog are available at Tornado.com. This article is for discussion purposes only, and the views expressed in this article are the author’s own. They do not reflect the position of Nvstr Financial LLC dba Tornado (“Tornado”) or its affiliates. Neither Tornado nor the author endorses any linked content, and statements herein may not be representative of the typical experience of Tornado customers. The contents of this article and tornado.com are not investment advice or a recommendation of a securities transaction or investment strategy. This is not an order, solicitation, or offer to buy or sell securities or business interests. Investing in stocks is risky, and using margin may increase these risks. Tornado is a member firm of FINRA and SIPC.
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