THE CAPITAL CYCLE -Equity, Currency, Crypto, and Gold Market Cycles and Trends Since 1896
The Capital Cycle explores the underlying trends and recurring patterns of the global economy and financial markets since 1896. Cyclicality is a fundamental characteristic of human behavior and a defining feature of the natural environment. Capital markets also exhibit cyclical behavior, progressing through the distinct phases of accumulation, expansion, peak, contraction, and recovery.
Equities typically outperform during the expansion phase of the business cycle and underperform during recessions: (1) Early Growth: +20% annually, (2) Mid Growth: +14%, (3) Late Growth: +5%, and (4) Pre-Recession / Recession: -15%.
When measuring the length of the business cycle, the focus is on the U.S., since the American economy makes up over 25% of global GDP and U.S. equity markets represent more than 40% of global equity market capitalization. From 1945 to 2020, U.S. business cycles averaged 6.21 years, closely aligning with the Federal Funds Rate cycle of 6.58 years. Within each business cycle, equities experience mid-cycles. The Dow Jones Industrial’s average mid-cycle duration of 3.2 years suggests that roughly two major stock market trends unfold within each business cycle (2 × 3.2 = 6.4).
Beyond the business cycle, economies move through secular cycles spanning multiple decades, influenced by debt dynamics, political forces, and technological change. Historical troughs between 1932-1974 (42.5 years) and 1974-2009 (34.5 years) indicate an average secular duration of 38.5 years, equivalent to roughly six business cycles (6 × 6.21 = 37.26). These long economic waves correspond to major equity market bottoms in 1932, 1974, and 2009, confirming that stock market secular cycles mirror the secular rhythm of the economy.
The following figures represent the average macro-cycle durations across major asset classes:
- Dow Jones Industrial / S&P 500: 37.5-38.5 years
- Gold: 29.5 years
- NASDAQ / DAX: 28.0-28.5 years
- US Dollar Index: 15 years
- Cryptocurrencies: 4 years
The Capital Cycle is structured around five chapters:
- Chapter 1 outlines the business cycle and liquidity dynamics, examining economic models and relating interest rates, money supply, and oil price cycles to broader market trends.
- Chapter 2 explores stock market structure, mid-cycles, and seasonality across Dow Jones, S&P 500, NASDAQ, and DAX, linking corporate earnings with equity performance.
- Chapter 3 examines the Foreign Exchange market, analyzing the macro and seasonal cycles of the US Dollar Index and eight pairs (EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, NZD/USD, EUR/GBP), emphasizing how central bank policies influence exchange rates.
- Chapter 4 focuses on cryptocurrencies and gold, tracing Bitcoin and Ethereum’s four-year cycles alongside gold’s long-term and seasonal patterns.
- Chapter 5 presents the analytical framework of key cyclical theories (Dow Theory, Elliott Waves, Wyckoff’s Method, Gann’s Cycles, and Benner’s Model) -each offering a distinct perspective on market rhythm and investor psychology.
Ultimately, The Capital Cycle seeks to uncover order amid economic chaos and structure within the apparent complexity of financial markets. While every investment carries a high degree of uncertainty, an educated bet remains far superior to a random walk. At the outset of writing this book, I had no way of knowing where the journey would lead, so by reading it, we embark on that journey together.
Enjoy the book
George M. Protonotarios