Which phase is characterized by a rally in cyclical assets and riskier assets outperforming?

The initial recovery phase is marked by the resurgence of economic activity following a downturn. During this period, consumer confidence begins to improve, leading to increased spending. As a result, cyclical assets, which tend to perform better during periods of economic expansion, experience substantial rallies. This includes stocks in sectors such as consumer discretionary, technology, and industrials, which benefit from the renewed economic activity and rising demand.

Riskier assets also tend to outperform during this phase as investors become more optimistic about future growth. They move away from safer investment options, seeking higher returns from assets that carry more risk. This behavior contributes to the strong performance of not only equities in cyclical industries but also other high-risk investments, such as smaller-cap stocks and emerging market assets.

In contrast, the other phases, such as the slowdown, recession, and late upswing, do not typically exhibit the same characteristics of strong performance in cyclical and riskier assets. During a slowdown, growth begins to decelerate, often leading to more caution among investors. A recession is defined by a significant decline in economic activity, which usually results in weakness across most asset categories. The late upswing phase may also see a divergence in performance as some sectors may start anticipating a downturn, leading