Typically, growth stocks perform better towards the end of a business cycle when growth slows down and investors are willing to pay a premium for consistent and steady growth. While cyclical stocks tend to outperform as economies emerge from recession and economic growth is strong. Cyclical stocks tend to have a lot of 'operating leverage', meaning that in strong economic growth their earnings can boom as revenues greatly exceed their high fixed costs. The chart below shows how cyclical performance led in the past bull markets of the 1960's, early 1980's, early 1990's and early 2000's. The outperformance of cyclical stocks in each of those bull markets ultimately peaked at much higher levels: in 1972, 1989, 1995 and 2007. The relative outperformance of cyclicals in the current cycle looks modest to past periods, and suggests there may be room for this trend to run!
