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.
Related Terms
Consumer Confidence
A survey-based measure of households' optimism about the economy — a leading indicator of consumer spending, which drives ~70% of U.S. GDP.
BeginnerGross Domestic Product (GDP)
The total monetary value of all goods and services produced within a country in a given period — the headline measure of economic size and growth.
BeginnerHard Landing
The painful outcome when aggressive monetary tightening overcorrects and tips the economy into recession.
IntermediateJobless Claims
Weekly count of people filing for unemployment benefits — the highest-frequency read on labor-market health.
BeginnerLagging Indicator
An economic measure that confirms a trend after it has already begun — useful for validating cycle phases but not for anticipating them.
IntermediateLeading Indicator
An economic data point that tends to move before the broader economy — useful for anticipating turning points before they show up in lagging hard data.
IntermediatePurchasing Managers Index (PMI)
A monthly survey of business activity across manufacturing and services — a leading indicator that moves markets before hard data arrives.
IntermediateRecession
A significant economic contraction — commonly defined as two consecutive quarters of negative GDP growth — that hits corporate earnings and risk assets hard.
BeginnerRetail Sales
Monthly measure of consumer spending at the register — a direct read on whether households are putting their money to work.
BeginnerRisk-Off
A market sentiment regime where investors flee to safety — selling equities and high-yield assets in favor of government bonds, gold, and haven currencies.
BeginnerRisk-On
A market sentiment regime where investors favor higher-risk assets — equities, high-yield credit, commodities, and EM — over safe havens.
BeginnerSoft Landing
The ideal macro outcome: the central bank tames inflation through rate hikes without triggering a recession — rare but market-moving when achieved.
Intermediate