Expansion Playbook
Economic growth is accelerating with rising GDP, falling unemployment, and moderate inflation. This is typically the most favorable environment for risk assets, but vigilance is required as expansions eventually mature and end.
Contraction Playbook
Economic growth is slowing or negative, unemployment is rising, and corporate earnings are declining. This is the most challenging environment requiring defensive positioning and capital preservation.
- GDP growth above trend (>2.5%)
- Unemployment falling or low (<5%)
- Inflation moderate (2-3%)
- Corporate earnings growing
- Fed policy accommodative to neutral
- GDP growth negative or below trend
- Unemployment rising
- Corporate earnings declining
- Credit spreads widening
- Fed policy shifting to accommodation
| Asset | expansion | Change | contraction |
|---|---|---|---|
| US Equities | overweight | Changed | underweight |
| Growth Stocks | overweight | Changed | neutral |
| Cyclicals | overweight | Changed | underweight |
| Bonds | underweight | Changed | neutral |
| Cash | underweight | Changed | overweight |
| Gold | neutral | Changed | overweight |
| Treasury Bonds | neutral | Changed | overweight |
| Defensives | neutral | Changed | overweight |
Stay invested in equities, particularly growth-oriented sectors that benefit from economic expansion. Don't fight the trend.
While staying invested, be aware of valuation levels. Extreme valuations during expansion often precede painful corrections.
Cash is king during contractions. Having dry powder allows you to buy quality assets at distressed prices.
Cut positions in cyclical and high-beta stocks. The first loss is often the best loss.
Quality bonds rally during contractions as the Fed cuts rates. Extend duration to capture price appreciation.
- 1995-2000: Tech boom expansion
- 2003-2007: Housing-led expansion
- 2010-2019: Post-GFC recovery
- 2021-2022: Post-COVID expansion
- 2000-2002: Dot-com bust
- 2007-2009: Global Financial Crisis
- 2020 Q1-Q2: COVID crash
- 2022: Rate shock contraction
"The market can remain irrational longer than you can remain solvent - but it can also remain rational longer than bears expect."
"In an expansion, the biggest risk is not being invested."
"The time to be greedy is when others are fearful - but only after the fear has peaked."
"Preservation of capital is the first rule. Making money is the second."
Compare playbooks to understand how your strategy should adapt when regimes change




