Nature has four seasons: spring, summer, autumn and winter. When the spring passes, the hot summer comes. When the summer passes, the autumn comes. And the fall passes, the cold winter comes.
Nature always repeats four seasons. And There is a theory that claims that the stock market, like the four seasons of nature, also circulates in a certain cycle. It is the theory of Urakami Kunio <four seasons of the stock market>.
He is a Japanese technical analyst. He said the stock market will turn from financial to earnings, and then back to reverse-financial and reverse-earnings. That is, the four stages of “the financial market → the earnings market → the reverse-financial market → the reverse-earnings market” are constantly repeated.
Normally, the economy changes every two or three years, and the sectors and groups that lead the stock market change accordingly. At that time, the four seasons of the stock market are circulating, and there is a depreciation between the financial market and the earnings market, and a rebound between the reverse-financial market and the reverse-earnings market.
Therefore, if you know in advance a certain pattern of the business cycle, you can make enough profit in the volatile stock market.
I have summarized the four seasons of the stock market and their characteristics.
1. Financial market
In the financial markets, interest rates decline and corporate performance deteriorates. Nevertheless, the share price rises, but the performance of the company is bad and the economy of the country will deteriorate.
In the end, the government will try to boost the economy by lowering interest rates. However, investors do not buy stocks because the performance of the company is not good even if the interest rate goes down.
At some point, the government’s financial and fiscal policies are triggered, and share prices suddenly begin to rise.
When the share price starts to rise, some investors judge it as a short-term phenomenon and take a selling position. However, share prices will continue to rise and eventually jump back to the buyout position, which will further increase the share price.
In the financial market, it is advantageous to buy interest rate sensitive stocks like financial stocks, representative stocks of each industry, oversold stocks, construction stocks, and utilities stocks.
2. Earnings market
In the earnings market, the company’s performance starts to improve due to the stimulus.
If the performance of the company improves, the interest rate will go up. However, since the performance of the company sufficiently covers this, the share price will continue to rise.
Generally, the earnings market period is longer than financial market period. If the price stabilizes as the economy recovers, the interest rate rises moderately.
At the beginning of the earnings market period, material stocks will lead.
In the second half of the earnings market period, the facility investment industry leads the share price. Because Companies have a strong belief in performance and are expanding their capex on this belief.
Even after the second half of the earnings market period, the economy is still expanding, but the money coming into the stock market begins to shrink.
3. Reverse-financial market
In the reverse-financial market, the economy is at its peak and the government is beginning to worry about overheating.
The government will pursue a policy of tightening the economy to prevent inflation from overheating and the possibility of an external economic shock caused by the bubble will also increase.
Corporate performance is still good, but the government is tightening policy. As a result, share prices start to fall.
In the reverse-financial market, stocks such as high-end consumer goods and luxury leisure stocks are leading the way.
If the current market is a reverse-financial market, it is advantageous to buy good stocks with high financial structure and high competitiveness, or to increase the proportion of cash.
4. Reverse-earnings market
In the reverse-earnings market, stock prices begin to fall as interest rates rise and corporate earnings deteriorate.
Investors who are participating in the stock market feel fear of a decline because their performance deteriorates and share prices fall. Because of this, it takes a lot of courage to buy stocks and the stagnation of the stock market appears.
In the reverse-earnings market, you should not buy stocks with rash judgment. It is advisable to make investment decisions when the government’s financial policies are turned into support.
The best way to deal with the reverse-earnings market is to wait for the government to implement the stimulus policy.