May 13, 2025: Business Cycle Shifts to the Slowdown Stage

After 16 years of the bull market and economic expansion, evidence is beginning to build that reflects the next phase - the Slowdown or contraction stage.
Some of the signals of the change are in GDP. Growth peaks in the Expansion phase and is positive but decelerates in the Slowdown stage. US GDP has been easing over the last two years. The latest Q1 2025 print was a negative 0.3%.
Interest rates are another road sign of the move to the Slowdown. Under Expansion, interest rates start rising from relatively low levels. The Slowdown stage has a more restrictive monetary policy. Rates stay relatively high for a longer duration. Rates have moved from 1% in early 2022 to a peak of 5.5% in early 2024. Currently holding at 4.5%.

Sector strength is another road sign of the change in the Business Cycle. Industry performance varies from the Expansion phase to the Slowdown stage. In the Expansion phase, financials and technology are typically the best-performing sectors. In the Slowdown or contraction stage, consumer staples and healthcare are often the best-performing sectors. Utilities and staples have the best performance, and healthcare has outperformed the S&P 500 over the last 90 days. Consumer discretionary and real estate sectors usually perform the lowest.

Increasing unemployment is more associated with the recession phase of the Business Cycle and is also connected to lower market levels.

Bottom line: Business Cycles are composed of cyclical upswings and downswings in the broad measures of economic activity: output, employment, income, and sales.

The Expansion phase of the Business Cycle is the longest stage. The present expansion lasted about 16 years. There are now increasing indications that the next stage (Slowdown or contraction) is beginning. Contractions typically last one to two years.