All goods things must come to an end. Let's explore the peak of the business cycle.

When the economy reaches its highest point during an expansion phase, it’s called the peak ⛰️

Once it reaches the peak, the economy immediately starts to reverse course and decline 🧐

Before the peak, stock prices are going up, and things look good on the surface!

But after the peak, stock prices may crash – like they did in 2020, 2008, 2000 and many other peaks throughout history 📉

It’s really hard to predict exactly when a peak is coming – even the best economists in the world can’t do it perfectly!

But some indicators that the economy may be reaching a peak are:

1️⃣ Interest rates start to rise as the central bank tries to control inflation 📉

💡Central banks like the Fed raise interest rates to slow down the economy when inflation gets too high

2️⃣ Stock market multiples like P/E ratio and stock prices start to far exceed historical levels, and many companies start to become overvalued 📊

3️⃣ Consumers start to feel “rich”; luxury consumption and speculation increases 😎

History tells us that when people start to spend lots of excess cash – for example on designer clothing or crypto – the peak may be near!

Since you can’t know exactly when the peak is coming, the best thing to do as an investor to prepare for it is to be selective about what you own and not get too greedy during an expansion phase 🕵️‍♂️

For example, you can periodically review your portfolio and consider taking profits on positions that have become overvalued 💰

You could also shift your investments towards more defensive sectors like healthcare, utilities and consumer staples, and ensure that you’re diversifying your portfolio 🏥

As always, focus on the long-term, but also keep an eye on key indicators like interest rates and stock market multiples so you’re ready to weather any storms on the horizon ⛈️💪

Test your knowledge

Which business cycle phase comes after expansion?

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Stock prices often _____ after the peak of a business cycle:

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What do central banks do to interest rates to lower inflation?

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To prepare for the peak, you might shift your investments towards:

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Emotional decisions based on short-term market movements are:

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What's next?

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