Early-Cycle:

The early-cycle phase occurs as the economy begins to recover from a recession. During this period, economic growth accelerates, consumer confidence rebounds, and businesses increase production to meet rising demand. Interest rates are often low, and credit conditions improve, making borrowing easier. Stock markets typically perform well during this phase as investors anticipate stronger corporate earnings. Sectors like consumer discretionary, financials, and industrials tend to benefit the most from early-cycle dynamics due to increased spending and investment.

Mid-Cycle:

The mid-cycle phase is characterized by steady, sustained economic growth. During this phase, the economy expands at a more moderate pace, inflation remains relatively stable, and corporate earnings continue to grow. Central banks may begin to raise interest rates gradually to prevent overheating. Business investment and hiring tend to increase, and overall market volatility decreases. The stock market typically performs well, though the gains may be more subdued compared to the early-cycle phase. Sectors such as technology and capital goods often perform strongly in this period as companies focus on growth and productivity.

Late-Cycle:

The late-cycle phase occurs as the economy approaches its peak. Growth begins to slow, and inflationary pressures rise as demand exceeds supply. Central banks may raise interest rates more aggressively to control inflation, which can lead to tighter financial conditions. Corporate profit margins may start to shrink due to higher costs, and business investment may slow down. Defensive sectors like healthcare, utilities, and consumer staples tend to perform better during this phase as investors seek stability in the face of potential market volatility. Stock market performance may be more volatile, with fewer broad-based gains.

Recession:  

The recession phase marks a period of economic contraction. Consumer and business spending decrease, unemployment rises, and corporate profits decline. Central banks often cut interest rates in an attempt to stimulate the economy, and government stimulus measures may be introduced to prevent a deeper downturn. Stock markets typically decline during this phase, although defensive sectors such as utilities and consumer staples may hold up better than others. Bonds and other fixed-income investments tend to become more attractive as investors seek safer assets. Recessions set the stage for the next market cycle, eventually leading back to the early-cycle phase.