Today we are explaining the Business Cycle. The business cycle is pretty simple, and only consists of 4 major stages. We decided to describe it using intermarket analysis, and analyzing each asset class. There is no place where the cycle really begins, but we decided to start at the recession stage. This happened because of the pandemic. During this stage, economic growth is bad and falling. This stage took almost 50 days with severe losses. Stocks and commodities are always very down during this stage, while bonds are very high because of such low yields and seen as a safe heaven.
The next stage is the recovery. It lasted 215 days. Economic growth is starting to rise, but usually there is actually no inflation yet. So, stocks are obviously rising. Bonds are also rising, but are starting to top out. And lastly, commodities are down, but are starting to bottom.
Next we have the expansion phase, which is the longest phase, and lasted 300 days. Economics growth is at all time highs and is rapidly rising, however is accompanied by inflation. Usually the inflation is nothing severe, so rates are rising at a slow pace. Stocks do very well, while bonds are down as rates begin to turn up. Commodities also do well during this stage.
The last stage is called late expansion/slowdown. I don't think this has not occurred yet because rates have not broken out yet, and there has been no rate hike to slow down growth. It occurs when the fed begin to taper their bond purchase program and begin to raise rates more aggressively to combat inflation that got out of hand. Economic growth begins to slow down, and stocks either begin to consolidate for a reversal, or begin to turn down. Commodities are rising, and bonds are falling. After this phase, we restart the cycle with a recession.
Happy Holidays from the SmartVest Team!
The next stage is the recovery. It lasted 215 days. Economic growth is starting to rise, but usually there is actually no inflation yet. So, stocks are obviously rising. Bonds are also rising, but are starting to top out. And lastly, commodities are down, but are starting to bottom.
Next we have the expansion phase, which is the longest phase, and lasted 300 days. Economics growth is at all time highs and is rapidly rising, however is accompanied by inflation. Usually the inflation is nothing severe, so rates are rising at a slow pace. Stocks do very well, while bonds are down as rates begin to turn up. Commodities also do well during this stage.
The last stage is called late expansion/slowdown. I don't think this has not occurred yet because rates have not broken out yet, and there has been no rate hike to slow down growth. It occurs when the fed begin to taper their bond purchase program and begin to raise rates more aggressively to combat inflation that got out of hand. Economic growth begins to slow down, and stocks either begin to consolidate for a reversal, or begin to turn down. Commodities are rising, and bonds are falling. After this phase, we restart the cycle with a recession.
Happy Holidays from the SmartVest Team!