Cyclicals Are Still Rich

Here’s an admittedly crude metric I like to use to look at the valuation of cyclical stocks. These are stocks of companies whose businesses are closely tied to the economic cycle. This is the ratio of the Morgan Stanley Cyclical Index (^CYC) divided by the S&P 500:

In other words, when the line goes up, cyclicals are out-performing.

On April 26, the ratio closed at 0.8034, its highest reading ever. Since then, the ratio has moved down very slightly. In March of 2009, the ratio got to as low as 0.4184. Historically, when the cycle switches directions, it’s a big deal and it last for a few years (though not always).

The S&P 500 is currently trading around 1195. If it closes there, this would be the highest close since May 3 when the index was at 1202.26. The high for this year came on April 23 when the S&P 500 closed at 1217.28.

Even though the S&P 500 is still short of its high, the Dow is very close to making a new high. The Dow is currently at 11,217 which is higher than its April high close (which came on the 24th instead of the 23rd) at 11,205.03. The Dow is currently on track for its highest close since September 19, 2008 at 11,388.44.

Posted by on November 2nd, 2010 at 1:43 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.