STAGES IN ECONOMIC CYCLES

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The economic cycle is 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. Economic cycle is the downward and upward movement of gross domestic product (GDP) around its long-term growth trend.

STAGES IN ECONOMIC CYCLE

Full Recession

This is not a good time for businesses or the unemployed. GDP has been retracting, quarter-over-quarter, interest rates are falling, consumer expectations have bottomed and the yield curve is normal. Sectors that have historically profited most in this stage include:

  1. Cyclicals and transports (near the beginning)
  2. Technology
  3. Industrials (near the end)

Early Recovery

In this stage, things are starting to pick up. Consumer expectations are rising, industrial production is growing, interest rates have bottomed and the yield curve is beginning to get steeper. Historically successful sectors at this stage include:

  1. Industrials (near the beginning)
  2. Basic materials industry
  3. Energy (near the end)

Late Recovery

In this stage, interest rates can be rising rapidly, with a flattening yield curve. Consumer expectations are beginning to decline and industrial production is flat. Here are the historically profitable sectors in this stage:

  1. Energy (near the beginning)
  2. Staples
  3. Services (near the end)

Early Recession

This is where things start to go bad for the overall economy. Consumer expectations are at their worst; industrial production is falling; interest rates are at their highest and the yield curve is flat or even inverted. Historically, the following sectors have found favor during these rough times:

  1. Services (near the beginning)
  2. Utilities
  3. Cyclicals and transports (near the end)

 

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