UNDERSTANDING THE INFLUENCE THAT ECONOMIC CYCLES HAVE ON INVESTMENTS

ECONOMIC CYCLE: Trough, Recovery & Expansion, Peak, Contraction

1. TROUGH: lowest point in cycle, unemployment high, lower profits and stock prices, consumers hesitant to make unnecessary or major purchases

2. RECOVERY/ EXPANSION: economy begins to recover, unemployment levels drop, demand increases, higher profits and stock prices, eventually production held back by limits of capacity, increased demand may lead to increased inflation

3. PEAK: interest rates and inflation high begins to cut into profits and stock prices begin to fall

4. CONTRACTION: inflation and interest rates compromise profitability
-plans for further expansion put on hold, output begins to exceed sales, overproduction increases in inventories, layoffs, stock prices fall

BULLISH: investors optimistic that stock prices will rise

BEARISH: investors pessimistic about strength of market, likely to sell stocks because fear prices will decline, increase supply will depress market prices

This material is for information purposes only and should not be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. Individual circumstances may vary and specific legal and tax advice is recommended. Future tax changes and market conditions may affect this information.

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