There are four phases of a market cycle – 1) Accumulation 2) Mark-up 3) Distribution 4) Decline.
Accumulation Phase – this phase follows a decline and is where values of Corporate America are attractive and a good entry point. Though, given that it follows a period of decline, investors may still be hesitant to reinvest just yet.
Mark-Up Phase – Following the accumulation phase, investors see that the market isn’t continuing to decline and are beginning to gain confidence. Uptrends continue to gain momentum and moving averages rise. Investors begin to buy in strongly, and FOMO (fear of missing out) kicks in.
Distribution Phase – Market highs remain in place, though some investors begin to take their profits. New highs aren’t being reached any longer. We begin to see patterns of market topping and declining market fundamentals.
Decline Phase – by the time most people realize the market is in decline phase it is too late. The top is in and the market is trending down. Some investors will sell to try to limit losses, some will hold to avert losses, and some will buy not knowing that the market bottom isn’t there yet.
Market cycles are formed from many economic factors including but not limited to, unemployment rate, manufacturing, interest rates, inflation, etc. all things we watch in the Seven Signs of a Changing Economy detail!
Of course, it’s easy to see where you were in a market cycle when you look back, but it is quite difficult to know exactly where we are in a market cycle while we are living it…if only I had that crystal ball!
Today, I believe we are somewhere between the “Anxiety” and “Panic” stages outlined in the graph above. This would mean that there is still more time until we see Capitulation and the market bottom.
Here at The Wealth Strategies Group, we have taken action to make cash available as to not fully participate in the continued volatility, and to have dry powder available for when we enter the next Accumulation Phase.
I am interested in your thoughts, comments, and questions!
Brittany N. Jarocki, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing involves risk. Loss, including loss of principal, may occur. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.