In economics books, we are told that cyclical sectors perform better early in the business cycle. These cyclical sectors are usually Technology, Consumer Discretionary and Commoditties.
In contrast, other sectors are more resilient during recessions, but perform relatively worse when the economy grows.
The Covid-19 crisis makes us wonder whether these axioms are true. The case of technology, without a doubt, is the most interesting.
Below, we see the three sectors that have the best earnings growth forecasts for 2020 and 2021.
Fuente: IBES. Elaboración Propia. Anchor Capital Advisors.
Here, we have two of the typical defensive sectors that are exemplified as being more resistant to recessions: Health and Utilities. So far, economics books work.
What draws our attention is the third sector of the graph: Technology.
Previously, the companies considered technological were companies that served as a "complement" in business production and consumer discretionary tasks. For this reason, they were considered cyclical.
Today, technology has become an everyday consumer good and is essential to maintain and improve the productivity of companies, to the point where it has penetrated the economy so much that it has become indispensable.
In fact, Tech is the second sector that will have the best performance in terms of earnings in the S&P 500: profits are expected to remain at a level similar to 2019 and it is one of those with the highest appreciation in 2020.
This makes us question whether, as textbooks say, technology remains a cyclical sector. It seems that it is no longer like that.
