Market Cycle
The recurring pattern of expansion, peak, contraction, and trough that financial markets move through over time.
What is Market Cycle?
A market cycle is the recurring pattern through which financial markets move, typically described as four phases: expansion (rising prices, growing economy, improving corporate earnings), peak (maximum prices before a reversal), contraction (falling prices, slowing growth, declining earnings), and trough (minimum prices before recovery begins). Market cycles are driven by the business cycle, monetary policy shifts, investor sentiment swings, and structural economic changes. The length and amplitude of market cycles vary enormously — bull markets have historically lasted 2–9 years in US equities while bear markets last months to a couple of years. Recognizing which phase of the cycle the market is in informs decisions about asset allocation, sector rotation, and risk tolerance, though timing cycles precisely is notoriously difficult even for professional investors.
Example
The 2009–2020 US equity market cycle saw the S&P 500 expand from 666 (March 2009 trough) to 3,386 (February 2020 peak) — an 11-year bull market representing one of the longest expansions in modern history. The COVID-19 contraction then compressed the market 34% in 33 days (February–March 2020), the fastest bear market on record, before the recovery began with unprecedented fiscal and monetary stimulus.