Business Cycle
The recurring pattern of expansion and contraction in economic activity around a long-term growth trend.
How it is identified
Phases: expansion, peak, contraction, trough, recovery, repeating with irregular length and amplitude
Unit
qualitative
In depth
Cycles are recurrent but not periodic — their length and depth vary enormously, so knowing that a cycle exists does not tell you where in it you are. Different sectors respond at different points, which is the basis of sector rotation strategies, though identifying the turn in real time is far harder than identifying it afterwards. Markets typically lead the economy, falling before a downturn is visible in data and rising before recovery is confirmed, which is why waiting for good economic news means buying after the move. Cycle position is knowable retrospectively and contested at the time.
Worked example
Equities often bottom several months before GDP does. An investor waiting for two consecutive quarters of confirmed growth would have missed a substantial part of the recovery, because the data confirming it is published with a lag.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Business Cycle” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.