Market Risk

Understanding Market Cycles and Your Portfolio’s Performance

Market cycles can be erratic and impossible to foresee. A market peak or valley may not be obvious until months after it happens, so it's important to understand market cycles and how they can affect your portfolio performance.

No investment is immune

Every asset class – stocks, bonds, cash equivalents and real estate – can be affected by cyclical patterns. However, different types of investments tend to move in opposite directions as a result of changes in the market. History shows that when stocks increase in value, bond prices typically decline – and vice versa.

Economy and politics drive cycles

Market ups and downs are often affected by economic and political conditions.

3 ways the markets can react

Another kind of cycle – cyclical stocks

Investments in certain economic sectors typically experience predictable ups and downs because their performance is closely tied to what's happening in the economy.

So-called cyclical stocks do well in a strong economy, but may suffer during an economic downturn. Examples include airlines, housing and automobile manufacturing. Conversely, stocks in pharmaceuticals and utilities are more apt to weather an economic downturn because their products and services generally aren’t tied to the economy.

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