Midcycle investing: a guide to portfolio construction

We’ve observed four distinct phases of the economic and business cycle over time. While we can’t measure the timing of these phases precisely, as each historical instance is slightly different, we can identify the key characteristics of each phase and use them as an input in helping position portfolios. Currently, we believe we’re somewhere in the early to midcycle phase, a period that has historically benefited stocks with value and quality factors, U.S. mid-cap equities, and corporate-heavy flexible bond strategies.

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Key takeaways

  • Economic and business cycles can be broken down into four distinct phases, each of which has unique characteristics.
  • We’ve identified two key indicators to help determine where we are in the cycle.
  • The current cycle began with a remarkably abrupt recession followed by a rapid recovery and is now in the early to midcycle phase.
  • We see three approaches that may collectively suit the current environment.