Economic Cycle

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DEFINITION of 'Economic Cycle'

The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle.

INVESTOPEDIA EXPLAINS 'Economic Cycle'

An economy is deemed to be in the expansion stage of the economic cycle when gross domestic product (GDP) is rapidly increasing. During times of expansion, investors seek to purchase companies in technology, capital goods and basic energy. During times of contraction, investors will look to purchase companies such as utilities, financials and healthcare.

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RELATED FAQS
  1. What is the average price-to-earnings ratio in the chemicals sector?

    The price-to-earnings ratio (P/E) is an important valuation metric used in fundamental analysis. It tells investors how much ... Read Full Answer >>
  2. Are there significant seasonal patterns in the electronics sector?

    There is strong seasonality in the electronics sector, with sales of nearly all kinds of electronics – computers, digital ... Read Full Answer >>
  3. Which stage of the economic cycle is most favorable for the chemicals sector?

    The expansionary stage of the economic cycle is most favorable for the chemicals sector. Each of the chemical sector's separate ... Read Full Answer >>
  4. How can an investor profit from a fall in the chemicals sector?

    An investor can profit from a fall in the chemicals sector by short selling chemical stocks and exchange-traded funds (ETFs), ... Read Full Answer >>
  5. What techniques can be used to hedge exposure to the chemicals sector?

    An investor can hedge exposure to the chemicals sector in two ways. Because the sector is cyclical, an investor can allocate ... Read Full Answer >>
  6. What stage of the economic cycle is usually the best for an investor to enter the ...

    The best time during the economic cycle for an investor to enter the electronics sector is when he has confidently identified ... Read Full Answer >>
  7. How can an investor profit from the cyclical nature of the electronics sector?

    An investor can profit from the cyclical nature of the electronics sector in two ways. He can employ sector rotation, shifting ... Read Full Answer >>
  8. During what stage of the economic cycle should I invest in the drugs sector?

    Invest in the drugs sector during the expansionary stage of the economic cycle, when the broader market is rising. The absolute ... Read Full Answer >>
  9. Is the banking sector a good choice for value investing?

    The banking sector is a good choice for value investing. Value investors look for stocks in which the market price does not ... Read Full Answer >>
  10. When during the economic cycle should I invest in the automotive sector?

    The best time to invest in the automotive sector is when the economy is emerging from a recession and interest rates are ... Read Full Answer >>
  11. What industries tend to use discounted cash flow (DCF), and why?

    The nature of the calculations used in discounted cash flow, or DCF, analysis make it more properly suited for use in evaluating ... Read Full Answer >>
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