Understanding the Economic and Stock Market Cycles

Jul 5th, 2015
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Algoma University College
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After one of the longest running economic expansions in the modern era, we find ourselves in the midst of a recession. Headlines show rising unemployment, lower consumer sentiment and rising foreclosures.

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Understanding theEconomic andStock Market CyclesWhy sitting on the sidelines can mean missed opportunitiesAfter one of the longest running economic expansions in the modern era, we find ourselves in the midstof a recession. Headlines show rising unemployment, lower consumer sentiment and rising foreclosures.Yet despite the gloomy economic news, the market is actually presenting opportunities to buy high-qualitystocks and investment-grade corporate bonds at very low valuations. To make sense of the negative headlinesand potential opportunities, it is useful to look at the interaction and differences between the economic andstock market cycles.A refresher on the economic cycleThe economic cycle is the long-term pattern of alternating periods of economic growth and decline. Growth periods areexpansions of the economy or booms,similar to what we experienced from 2002 to 2008. Periods of decline are contractions ofthe economy or recessions, similar to the conditions we are experiencing currently in 2009. The highest point of a boom iscalled a peak; the lowest point of a recession is called a trough. The expansions and contractions of the econo

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