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Investments depending on the phase of the economic cycle

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The choice of instruments for investment is influenced by the stages of the economy.
Historically, the market over time undergoes crisis states, when markets fall in a certain period of time, and, conversely, there are periods when the markets are completely positive and grow up. All this is connected with the economic cycles of the economy.

The economic cycles of an economy are recurring ups and downs in an economy.
In the classical sense, the economic cycle includes the following phases: peak, recession, crisis, recovery.

Investments depending on the phase of the economic cycle

Phases of the business cycle

Peak – the most favorable period of time, characterized by high business activity in all areas of activity, a minimum level of unemployment, low interest rates.

Most industries on the market feel good and are growing, especially IT, consumer services.

Recession (or in other words "recession") – a reduction in business activity, production volumes, an increase in unemployment over a period of three months. At this level, a transition to depression in the markets is predicted, enterprises begin to close.

At this stage, it is advisable to start preparing for a crisis and acquire protective instruments, such as gold and the dollar, short-term bonds in order to have cash on the so-called sales on the market. Some shares are also classified as defensive by analysts, for example, Surgutneftegaz (preferred), Next Era Energy (the company is engaged in the production of green energy).

The crisis is the bottom of the economic cycle, which characterizes the fall in the standard of living, GDP, the growth of refinancing rates.

The crisis has a positive effect on industries that are essential for the population, such as health care, essential goods and utilities.

It is believed that the period of crisis is the best time to enter the stock market for young people who have just completed their studies. And, on the contrary, the most unfavorable period of fixing positions on financial instruments.

Rise – the revival of business activity, the positive mood of the markets, the restoration of the level of the economy for the pre-crisis period and above. Refinancing rates are falling, which spurs production to increase activity.

The industries that typically benefit the most from low interest rates are growing the most: finance, real estate.
Also growing are industries that typically benefit from increased borrowing, including: automobiles, consumer goods.
Sensitive sectors such as industry and IT also have a positive impact .
At the same time, industries that are waiting for the recovery of the economy are growing: transport
Lagging behind in the recovery phase are communications services and utilities.

Then the peak stage of the economy begins again. Markets swell and overheat, the economic cycle ends and a new one begins.

The duration of one cycle rarely occurs at regular intervals, it can be either a short or a long period. Therefore, according to the duration, the cycles are divided into the following:

1 Kitchin cycles (3–4 years old)
2 Zhuglyar cycles (6–13 years old)
3 Kuznets rhythms (15–20 years old)
4 Kondratiev waves (40–60 years old).

Although business cycles are individual, an investment analysis approach that identifies key phases in the economy can provide guidance to investors when choosing investment vehicles.

Post source: zen.yandex.ru

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