STOCK MARKET CYCLES

For the most part, the investment industry advises people to use the same investment strategy regardless of how the stock market is behaving.  They instruct people to use the same strategy in every market cycle—and simply “hang in there” during the tough times. No matter what the market is doing, they recommend the same approach.

Does that make any sense to you? It shouldn’t.

It never made sense to me either. And because the industry wasn’t willing to put in the work to solve this problem, I decided to do it myself.

It wasn’t easy. It took me decades to develop a solution—The Market Cycles Investment System (MCIS).

If you study the stock market, it is easy to see that the market moves in cycles. 

The industry has oversimplified these cyclical movements into just two cycles.  They say we are either in a bear market of a bull market and they have some arbitrary definitions of the two.

Examining the last 100 years of stock market data, I discovered three distinct market cycles.

1. Steady Growth Cycle – Stocks climb steadily with minor corrections. This is the ideal environment and occurs about 50% of the time.

   
   

2. Volatile Growth Cycle – The market still grows but with more frequent and larger corrections. This occurs about one-third of the time.

3. Bear Market Decline Cycle – Stock prices drop significantly and rapidly. These painful periods occur only 18% of the time.

   
   

As you can see in the pie chart, the market is in growth mode most of the time (green segments). But it also experiences sharp, deep declines during bear markets (red segment).

The stock market consistently generates long-term average growth of about 10% per year, but that growth does not occur in a straight line. Here are the average annual returns by market cycle over the last 30 years:

Investment Cycle	Annual Return
Steady Growth	+22.0%
Volatile Growth	+15.0%
Bear Market Decline	–37.0%

This tells us something crucial: if you can capture the upside of the Steady and Volatile Growth cycles—and sidestep the Bear Decline cycle—you’ll dramatically improve your investment results and reduce your risk.

The core challenge is this: the market doesn’t tell you what cycle it’s in at any given time.

Using advanced data analytics, artificial intelligence, and powerful computer processing, I solved this problem. I analyzed market patterns across all three stock market cycles, going back 100 years. Daily S&P 500 data is available all the way back to the 1920s.

The key is to understand the behavior characteristics of the stock market in each cycle.  The graphs below paint a clear picture of those differences

The first graph shows a simplified version of the Steady Growth Cycle. If only we could live in that cycle all the time. In these phases, the market climbs steadily, typically interrupted only occasionally by small pullbacks. Average declines during this cycle are usually less than 8%–9%.

The second graph illustrates the Volatile Growth Cycle, where the market still trends upward over time—but with frequent reversals and larger price drops. Declines can range from 4% to 18%. This cycle is the trickiest to navigate because it often looks like a bear market, even though prices continue rising over the long run.

The cycle that most people are more familiar with is the Bear Market Decline cycle.  This is the cycle that we all fear – and for good reason.  The next chart shows the steady and large decline of the S&P 500 (the market) during the 2008 Financial Crisis.  Most bear markets follow a similar pattern.  This one lasted about one and a half years – a little longer than average.  It also dropped by a larger amount (almost 50%) than the average bear market (more like 40%). 

Once you can develop a reliable method to detect which cycle the market is in, you can apply a different investment strategy to each cycle. 

This is how my system works. We invest more aggressively (up to 100% in stocks) when the market is in both growth cycles (steady and volatile) and we follow a different strategy when stocks are falling (moving out of stocks).

Naturally, we want to be fully invested (100%) during the Steady Growth cycle to capture those +22% annual returns. And just as obviously, we want to exit the market quickly during Bear Decline cycles, when losses average –37% annually. My system does that for you automatically. 

An investing system like my Market Cycles Investment System can double your investment returns and dramatically reduce your risk by limiting losses in bear markets.  

You can have the best of both worlds. Email me (phil@beyondbuyhold.com) today to find out how deploy this better strategy and to start creating the retirement of your dreams.

Stay Disciplined My Friends,

Phil

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