Financial Education

Major movements in interest rates, equities and commodity prices are related to changes in the business cycle.

Typically, the bond market is the first to signal business cycle turning points. Bonds will begin a bull phase after economic growth has slowed considerably, and often during the early stages of a recession. Bond prices are inversely related to interest rates, so falling interest rates result in higher bond prices.

As the recession deepens, equity investors begin to “look past” the trough in corporate profits. As a general rule, the longer bonds have been rallying prior to the bottom in the stock market, the better the chances of a rally in stocks.

Once the recovery begins, resource utilization begins to tighten and commodity prices bottom.

For more information, see all articles on: Economic Analysis, Technical Analysis

See also:

Classification of Price Movements

Normalizing Price to Earnings Ratio for Business Cycle Effects

Industry Classification: Business Cycle Reaction

Six Stages of Business Cycle Investing

Stages of the Business Cycle