Business cycle
Also known as: economic cycle
The business cycle is the recurring pattern an economy moves through over time: expansion, when growth and employment are rising, a peak, when growth tops out, contraction, when output and employment fall, commonly called a , and a trough, the low point before the next expansion begins.
Investors use where the economy sits in the business cycle to decide how much to lean toward , companies like industrials, homebuilders, and retailers whose profits swing heavily with the broader economy, versus defensive , companies like utilities and consumer staples that sell things people keep buying regardless of conditions.
No two business cycles last the same length or unfold the same way, and there is no single reliable signal that marks the exact turning point in real time. Investors instead watch a combination of indicators together, including , the , and surveys like the , to build a picture of which phase the economy is most likely in.