The Phases of Market Cycles

The market is characterized by four distinct phases: despair, hope, growth, and optimism. During the despair phase, prices are typically falling, often in anticipation of a recession, which leads to reduced company profits and lower valuations. The hope phase follows, where gains are driven by improving sentiments even when economic conditions remain poor, typically lasting less than a year. This is then succeeded by the growth phase, where the economy witnesses steady profits, followed by the optimism phase, leading to a potential bubble as investors overly assume the bullish sentiment will persist.