Four-Phase Cycle in the Stock Market

Everything has cycles. And now I just learned that there are four-phase cycle in our economy and here are their characteristics, especially in the credit and equity markets. I hope this information will be beneficial to some people.

First Phase
- Economy emerges from recession
- Bottom of the credit bear market
- Issuing of deeply discounted shares by some companies to repair their balance sheets
- Equity prices keep falling

Second Phase
- Equity prices rally
- Profitability emerges
- Corporate cashflows rise strongly
- It may appear as an immature equity bull market

Third Phase
- Equity market rises
- Appear as a mature equity bull market
- Equity market decouples from credit and continues to rise
- Investor appetite can be seen

Fourth Phase
- Entering the bear phase
- Equity & credit prices are falling together
- Insolvencies plague the credit market
- Profit warnings plague the equity market
- Falling profits and worsening balance sheets

The following info was taken from Citigroup Global Markets' equity research which was published on The Business Times on 27 October 2007.