the business cycle
may reveal new opportunities
  • biz_01_cover_2018

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

  • biz_02_cycle_2018


    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 consider learning more about the business cycle because it may help identify investment opportunities.


    The business cycle is a primary factor that drives
    business performance

    Performance generally drives
    investment values and returns

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

    Those transitions also create
    opportunities for informed investors
  • biz_04_cycle_2018


    During a full rotation, we see the business cycle transition through expansion and recession.

    • Expansion has three stages: recovery, mid-expansion and late expansion
    • Each stage has characteristics that help us identify it
  • biz_05_recovery_2018


    When recovery begins economic growth accelerates.

    • Employment growth begins again
    • Inflation returns to a moderate level
    • Interest rates remain steady
    • The yield curve remains normally sloped

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

  • biz_06_mid-expansion_2018


    In mid-expansion, economic growth is typically moderate.

    • Employment growth is steady
    • Inflation starts to increase
    • Interest rates begin to rise
    • The yield curve flattens
  • biz_07_late_expansion_2018


    As we reach late expansion, economic growth slows down.

    • Employment growth slows
    • Inflation reaches a peak
    • Interest rate increases stop
    • The yield curve inverts
  • biz_08_recession_2018


    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.

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

    Recovery -- Historically outperformed: Small-cap stocks, Emerging market stocks, Commodities; Historically underperformed: Large-cap stocks, International stocks, International bonds; Mid-expansion -- Historically outperformed: Large-cap stocks, Mid-cap stocks, Intermediate U.S. bonds; Historically underperformed: Emerging market stocks, International bonds, Commodities


    As of 2018, indicators suggest we’re now in late expansion.

    • Employment has been growing and unemployment remains low
    • Inflation has been very low, but is now starting to rise
    • Economic growth has been steady since the end of the last recession
    • The Federal Reserve has been raising the fed funds rate since December 2015; gradual hikes are expected in 2018
    • Although the curve has flattened considerably in the past year, it still has some distance to go before it inverts

    As of January 2018 Source: Nationwide Economics

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

    International stocks

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

    Small-cap stocks

    are expected to record stronger profits than large-cap stocks*

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

    *Source: Factset, 2017.

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


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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