As US Economy Expands, Innovation Is Tide That Lifts All Boats
Business Cycle Investing: What Should You Look For? (Part 4 of 8)
Innovation is driving growth in the US economy
Technology (XLK) and capital goods (XLI) industries, along with big-ticket consumer discretionary industries like autos (CARZ) and housing (IYR), do best toward the middle of an economic recovery and in the middle of a bull market. This is when prices are still moderate yet people are employed.
This seems to be the case now as technology-oriented stocks are benefiting across sectors such as healthcare. As the US economy expands, innovation seems to be the tide that is lifting all boats. Innovation is being driven by technology.
Healthcare, biotechnology stocks have gained
The US healthcare sector (XLV) has gained on the tide. Technology-oriented healthcare sector stocks such as those in the biotechnology industry have performed well so far this year. Biogen (BIIB) is up about 25%, Celgene (CELG) has gained 2.6%, and Amgen (AMGN) has gained 4.19% on a year-to-date (or YTD) basis.
The iShares Nasdaq Biotechnology ETF (IBB), which invests in NASDAQ-listed biotechnology or pharmaceutical companies, has gained 18% on a YTD basis. The iShares Nasdaq Biotechnology (IBB) has gained more than 24%.
The consumer sector is now more technology-driven
Technology is also taking hold of the consumer sector, as reflected in the rapid pace of expansion of the e-commerce business. The high level direction in which the technology sector is going is quite evident in the recent trend.
E-commerce businesses are increasingly bidding for and acquiring companies with a niche and differential capabilities. Facebook (FB) acquired the virtual reality technology leader Oculus. Snapdeal acquired the gifting technology platform Wishpicker, and Flipkart acquired the online fashion portal Myntra.
The telecommunication sector, which is also technology-driven, has performed well so far this year.
Let’s now take a look at how the US economy has changed over the years. This will help us understand what business cycle the US economy is currently in.
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