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



Look Out!
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.


An understanding of the business cycle can help one to cope with an economic decline. Check out the article Recession - What Does It Mean to Investors for more information.



Economic Growth Factors

Related Articles
  1. Trading

    Market Cycles: The Key To Maximum Returns

    You need to understand the various phases of the market cycle to avoid bubbles and make the best investments.
  2. Investing

    Business Cycle

    The 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, ...
  3. Insights

    The Best Business To Be In During A Recovery (And Why)

    Where are the best places to be when an economy starts to recover?
  4. Investing

    Company Survival: Cash Conversion Cycle Is Key

    Find out how to use this figure to analyze a firm's financial condition.
  5. Investing

    Cashing In On A Commodities Boom

    They're hard to predict, but commodities cycles provide valuable information for traders.
  6. Insights

    Is a Recession Coming?

    Even as a number of economic indicators look good, global conditions and inflation levels point to the imminence of another recession.
  7. Investing

    Tips For Recession-Proofing Your Portfolio

    Find out what to do when the sun sets on a burgeoning market.
  8. Small Business

    The Impact Of Recession On Businesses

    Find out how this economic cycle affects both small and big business.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center