Business Cycle
The recurring sequence of economic expansion, peak, contraction, and trough that drives sector rotation, earnings cycles, and asset class returns.
The business cycle describes the economy's natural rhythm of expansion and contraction. The four phases are: expansion (rising growth, employment, and inflation), peak (maximum output before a slowdown), contraction/recession (falling output, rising unemployment), and trough (the bottom before recovery).
Each phase has implications for asset allocation and sector rotation. Early-cycle (recovery) favors cyclicals and small caps; mid-cycle favors broad equities and credit; late-cycle favors commodities and real assets; recession favors defensives, government bonds, and cash. Understanding where the cycle stands is a foundational skill in macro trading.