Understanding
the business cycle
can reveal new opportunities
  • biz_01_new_cover

    Learn about the
    business cycle
    and where we
    are now, so you
    can make more
    informed choices
    about your
    investments.

  • biz_02_cycle

     

    The business cycle is a natural evolution that we see in every economy.

    biz_02_icon_increases_16px_1 Business activity increases as companies produce new products and services that consumers want


    biz_02_icon_decreases_16px_1 Business activity decreases as the markets for these innovations mature and consumer spending slows


  • All investors should learn more about the business cycle because it may help identify investment opportunities.



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    The business cycle is a primary factor that drives
    business performance


    That performance drives
    investment values and returns
    biz_03_magnify_2


    Investors face risks as the business cycle
    transitions from one phase to the next


    Those transitions also create
    opportunities for informed investors
  • biz_02_cycle

     

    During a full rotation, we see the business cycle transition through four distinct phases.

    • The phases are expansion, maturation, recession and recovery

    • Each phase has characteristics that help us identify it


  • biz_02_cycle

     

    In an expansion,

    economic growth is typically moderate.

    • Employment growth is steady

    • Inflation starts to increase

    • Interest rates begin to rise

    • The yield curve flattens






    The yield curve shows interest rates for U.S. Treasury debt at issued durations — currently from four weeks to 30 years.

  • maturation

     

    As we reach maturation,

    economic growth slows down.

    • Employment growth slows

    • Inflation reaches a peak

    • Interest rate increases stop

    • The yield curve inverts

  • recession

     

    During a recession,

    economic growth is negative.

    • Employment declines

    Disinflation or deflation takes over

    • Interest rates decrease

    • The yield curve returns to a normal positive slope






    Disinflation is a slower rate of inflation, and deflation is when price levels actually decrease.

  • recovery

     

    Recovery follows

    and economic growth accelerates again.

    • Employment growth turns positive

    • Inflation returns to a moderate level

    • Interest rates remain steady

    • The yield curve remains normally sloped


  • Certain asset classes typically perform better than others during the different phases of the business cycle.


    biz_09_investments_1_white_1
    biz_09_investments_2_white_1
  • where we are

     

    As of early 2017, indicators suggest we’re now in the late expansion phase and nearing maturation.

    • Employment has been growing and unemployment remains low

    • Inflation has been very low, but is now starting to increase

    • Economic growth has been steady since the end of the last recession

    • After keeping them low, the Federal Reserve is starting to raise interest rates

    • The yield curve is positively sloped, which indicates a healthy economy


  • Two investment opportunities may deserve closer consideration in this late expansion phase of the current business cycle.


    biz_11_globe-2
    International stocks

    may have the potential to outperform U.S. stocks in the
    coming years as expansion continues


    biz_11_pie_chart-2
    Small-cap stocks

    are expected to record stronger profits than large-cap
    stocks during 2017 and 2018*


    Remember that any choices you make should be consistent with your long-term investment goals.

    *Source: Factset, 2016.

  • Work with a financial advisor to maintain a disciplined investment strategy throughout all phases of the business cycle.




    MFM-2482AO

Printable version

View and download a printable version of this guide.

The yield curve

Also review our concise guide about the yield curve.

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