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

  • 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.


    The business cycle is a primary factor that drives
    business performance

    That performance drives
    investment values and returns

    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.

  • 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.

    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 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.


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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