Relative movements within asset classes and the behaviour of individual equities can often tell us a lot about the kind of future that markets are implicitly assuming for economies and profits.

For example, while the news flow from the main macroeconomic data around the world has been relatively robust, equities have generally struggled through the early part of the year. Stocks, it seems, are choosing to focus on the one or two bits of bad news that suggest a mild slowdown from 2004's extremely strong growth rather than that, so far at least, 2005 is shaping up to be another year of reasonably robust expansion.

US equities are down in the year to date, as are some of the main Asian indices, while Europe is essentially flat. One reason for this is that within the broader markets, technology stocks are particularly weak. US and Asian markets typically have many more quoted technology companies than do the European bourses.

Moreover, most of the growth worries are centred on the US: despite the fact that the US is still likely to expand by two or three times the rate of many European economies in 2005, markets remain fretful about problems with US fiscal and trade deficits. Investors have given up worrying about European growth - expectations are so low that any surprise is more likely to be on the upside.

The pattern of sector and stock performance within Europe is particularly interesting because the few areas of the stock market that are actually doing well are typically those most heavily exposed to the economic cycle. Construction stocks, for example, are maintaining a very strong run, something that is hard to square with the idea that growth is about to fall off a cliff.

While it is true that this sector is a favourite to see merger and acquisition activity, it is also the case that investors seem to be relatively sanguine about growth: while there may not be too much of it around in Europe, the bet seems to be that 2005 could be a touch better than 2004.

In this regard it has been interesting to watch CRH survive several downgrades by some investment banks. Notwithstanding its heavy exposure to the supposedly vulnerable US markets, the stock has been on a run since the beginning of last year and, in my view, looks well positioned to take out its all-time high seen in 2001.

It is a superbly well-run company, a very successful serial acquirer of other businesses and has exposure to high-growth markets in Europe. Provided global growth maintains a reasonable pace, CRH's valuation is not terribly demanding, and is arguably cheap.

While construction stocks are already well ahead for the year, the share prices of some of the main European engineering companies are also doing well. These are often diversified businesses, making everything from trucks to heavy capital goods.

Again, this sector has been on a bit of a roll for some time, so it is fascinating to see it continuing to make progress against a background of growth worries in general and concerns about investment spending in particular. The Scandinavian-based diversified industrial company Atlas Copco manufactures generators, construction and mining equipment, and electric tools, amongst other things. Bears of global growth will probably be urging investors to take profits - I would regard this as a buying opportunity.

Within the engineering sector there are one or two stock specific stories. MAN, the German truck maker, is benefiting from strong demand for its core product (there are anecdotal stories of a shortage of trucks in key markets, thanks to the explosion in world trade growth in recent years).

German companies are in the spotlight, with growing evidence that structural reform is finally starting to take hold in Europe's largest and most afflicted, economy.

Growth in eastern Europe has helped German exporters weather the storm created by the rise of the euro. If Germany is starting, albeit slowly, to turn the corner, investors would be well advised to look to buy assets in that country. I have previously drawn attention to the fact that Germany has, for example, probably the cheapest property market in the developed world (only Japan gives it any competition in this regard).

If an investor had bought a basket of European engineering stocks at the beginning of the year and sold short a basket of technology stocks, he would already be ahead by around 13 per cent (looking at the components of the FTSE Eurofirst 300 index). That's a huge number compared to the broadly flat European markets.

This is an example of how important it is to get both the sector and stock calls right within an overall equity allocation.

Yet again, we see that while total market returns may be extremely modest - and this is the best central expectation going forward - sensible (and accurate) sector bets can pay large dividends.

Two sectors previously highlighted in this column have been oils and mining. Both have managed to beat the market so far this year, mining particularly so. Oil stocks are currently not terribly fashionable, with many commentators suggesting that any benefits from the high oil price are likely to be eroded by the need for the industry to embark on heavy capital expenditure.

There is also a widespread view that it would be wrong to bet against a large fall in the oil price. While the oil sector is unlikely to excite in the near term, I would regard all of these concerns as being over done.

Whether the patterns in sector and stock price movements continue in this fashion will largely be down to how growth develops from here.

If, as I expect, the slowdown remains relatively modest, the outperformance of so-called cyclicals should continue. But it is important to recognise that it is only the "old economy" cyclicals that are doing well. The super-cyclical technology sector remains beset by valuation problems and ferocious competition that drives down margins.

Chris Johns is an investment strategist at Collins Stewart. All opinions are personal.