Responding to market cycles

The movement of the financial markets can seem mysterious. Yet, if we look back over long periods, we can see definite patterns that consistently repeat themselves. As an investor, how should you respond to these market cycles?

To begin with, it’s useful to know something about the nature of a market cycle and its connection to the business or economic cycle, which describes the fluctuations of the economy between periods of growth and contraction.

Issues such as employment, consumer spending, interest rates and inflation can determine the stage of the business cycle. On the other hand, the market cycle refers to what’s happening in the financial markets — that is, the performance of all the different types of investments.