All three indexes and transports peaked within 35 days of each other in 1989. The S&P 500 went on to gain about 7 percent in the next 10 months. In July 2007, the four groups were already beginning to slump and the S&P 500 rallied the next three months to hit an all-time high 1,565.15 on Oct. 9.
In 1999, the benchmark gauge advanced about 15 percent in the 11 months after cyclicals, banks and the measure of shipping companies reached a high.
Increases by the measures have foretold economic expansion in the past. Small-caps surged 39 percent from April to October 1997 and went on to set a record in April 1998. U.S. GDP grew 4.5 percent in 1997, the fastest since 1984, and climbed 4.8 percent by 1999, data compiled by Bloomberg show.
“It is very typical, almost prototypical, of a classic early-stage recovery,” Rich Weiss, the Mountain View, California-based senior money manager for American Century Investment who helps oversee $130 billion, said in a July 17 phone interview. “It is what I learned at Wharton 30-something years ago, and it still holds true today. Those are the classic early-cycle sectors and indicators.”
Earnings for financial firms, the second-biggest group in the S&P 500 after technology shares, increased 26 percent last quarter, more than any other industry, analyst estimates show. Profits are expected to climb 14 percent for cyclicals in 2014, about 3 percentage points more than the full market.
The median stock in the Russell 2000 is up 8 percent in the last 30 days, according to data compiled by Bloomberg. Alliance Fiber Optic Products Inc., the maker of communications parts, gained 141 percent this year. After beating earnings estimates for four consecutive quarters, the Sunnyvale, California-based company will report that profits more than doubled last quarter, according to research firm B. Riley & Co.
Transportation stocks, projected to boost profits more than three times as much as the S&P 500 in 2013, climbed 24 percent so far this year and reached a record July 19. Delta, the second-largest carrier by passenger traffic, rose 71 percent as the Atlanta-based company beat profit estimates. Delta should increase earnings 46 percent for the full year, according to analyst forecasts.
Union Pacific Corp., the largest U.S. railroad, rose 30 percent this year, 11 percentage points more than the S&P 500. The Omaha, Nebraska-based company has posted 14 consecutive quarters of earnings growth. Annual per-share earnings should rise 15 percent a year in 2013 and 2014, estimates show.
“All of these things tie in together,” Phil Orlando, New York-based chief equity strategist at Federated Investors who helps manage $380 billion, said in a July 17 phone interview. “Because the market is a forward-looking discounting mechanism looking out a couple to three quarters, this tells us that this economic and stock-market rally would improve.”