The global economy experiences upswings and downswings, which are often referred to as the business cycle. A variety of factors drive these economic growth changes, including changes in interest rates, credit availability, and consumer and business confidence.
Using a simple methodology, we identify four different stages of the global business cycle: recovery, expansion, slowdown, and contraction. We review the distributions of asset performances across these stages.
Asset performance is highly sensitive to the global business cycle, with many assets experiencing meaningful shifts in performance distributions across business cycle stages. At a high level, equity performance is strongest in recoveries and government bond performance is strongest in contractions.
Understanding the distributions of asset performance across business cycle stages and considering where the global economy is headed are key inputs in a rigorous investment decision-making framework.