The economy
Business cycle
The recurring pattern of expansion, peak, contraction and recovery in an economy.
How it works
Different sectors behave differently across the cycle: cyclicals such as industrials and consumer discretionary swing hardest, while staples and utilities are steadier.
The pattern is real and its timing is not predictable, which is why sector rotation strategies built on cycle forecasts have a poor record.
Related terms
- RecessionA significant, broad-based decline in economic activity lasting more than a few months.
- Leading indicatorA statistic that tends to change before the wider economy does.
- SectorA grouping of companies doing broadly similar business, used to organise markets.
- Mean reversionThe tendency of extreme values — margins, multiples, returns — to drift back towards long-run averages.
More in The economy
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