In the US, business cycles are defined and measured by the National Bureau of Economic Research ( NBER), a private nonprofit. In the expansionary phase, the opposite occurs: Investors go on a buying spree, causing stock prices to rise - a bull market. During the contractionary phase of a cycle, investors sell their holdings, depressing stock prices - a bear market. The stock market is greatly influenced by the phases of a business cycle and generally mirrors its stages.

A market cycle specifically refers to the different growth and decline stages of the stock market, while the business cycle reflects the economy as a whole.īut the two are definitely related. Though often used interchangeably, a business cycle is technically different from a market cycle. The most recent trough was in April 2020. The rebound is not always quick, nor is it a straight line, along the way toward full economic recovery. It occurs when the recession, or contraction phase, bottoms out and starts to rebound into an expansion phase - and the business cycle starts all over again.

Trough: IF the peak is the cycle's high point, the trough is its low point. Even after a recession is officially over, that doesn't mean that the economy has returned to its original shape and size. When the GDP has declined for two consecutive quarters, the economy is often considered to be in a recession. During a contraction, unemployment numbers typically spike, stocks enter a bear market, and GDP growth is below 2%, indicating that businesses have cut back their activities. It's the period when economic activity is on the way down. A contraction is forthcoming.Ĭontraction: A contraction spans the length of time from the peak to the trough. This is the turning point: With no room for growth left, there's nowhere to go but down. The peak marks the climax of all this feverish activity when the expansion has reached its end and indicates that production and prices have reached their limit. Investors might become overconfident, buying up assets and significantly increasing their prices, which are not supported by their underlying value, creating an asset bubble. Any number of factors can throw the economy off balance. Peak: The economy starts growing out of control once these numbers start to increase out of their healthy ranges.

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