Stages of the Business Cycle
Business cycle conditions can affect the outcomes of investment decisions, but can be very difficult to predict. To the extent that decisions can be made based on predicting the business cycle, each stage of the cycle can present different opportunities.
Early Upswing
As the economy begins to pick up, confidence rises and momentum builds. Stocks and real estate tend to perform well.
Late Upswing
The longer a boom lasts, investors often seem to forget there is a cycle. Stocks and commodities continue to rise but are less attractive values. High yields can make bonds and interest-sensitive stocks attractive investments.
Slowdown
Declining growth usually coincides with declining interest rates, which helps investments in bonds.
Recession
Lower interest rates eventually help the economy stabilize. Late in a recession stocks and commodities are often cheap again.
Recovery
As the economy begins to pick up again, cyclical stocks and commodities are the first to recover. As more confidence builds, riskier assets begin to perform.
For more information, see all articles on: Uncategorized See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
