Changes in the business cycle impact the return on securities in different asset classes. We'll discuss the business cycle's effect later in this section.
The business cycle has four phases:
- Expansion - this phase begins after a low point in the economy and is characterized by increased economic activity and real GDP increases.
- Peak - this is the period where the growth rate of the expansion slows, and the economy is in a period of prosperity.
- Contraction - this follows the peak and is characterized by a reduction in GDP, as well as other business indicators. Also known as recession.
- Recovery - this is where the contraction reaches bottom (also called a trough) and may be stagnant for a time before starting the next expansion.
Phases of the Business Cycle
The term recession may refer to the contraction stage in the business cycle, but it also refers to a prolonged drop in GDP that lasts at least two quarters.
Economic Growth Factors
InsightsUnderstanding the business cycle and your own investment style can help you cope with an economic decline.
TradingYou need to understand the various phases of the market cycle to avoid bubbles and make the best investments.
InvestingExamine economic and sector performance over the business cycle to determine which ratios are most important for each phase of the cycle.
InvestingThe business cycle refers to the fluctuations in economic activity that an economy experiences over a period of time. It consists of expansions, or periods of economic growth, and contractions, ...
InvestingWe look at how the market signals impending economic cycles and sector performance during each stage.
InsightsHolding periods should be established after analysis of market cycles, to determine the most advantageous timing for entries and exits.
InvestingFind out how to use this figure to analyze a firm's financial condition.
InvestingThey're hard to predict, but commodities cycles provide valuable information for traders.