Business growth tops out and declines. High interest rates level out and drop a bit. Stocks stage occasional, strong rallies and investors buy. Then the market drops again. Interest rates fall.
Stocks rally strongly, but investors worry that it's just another fake-out.
So they sit on the sidelines or sell. Business improves, interest rates stay low, and stocks continue to rise. At this point, the average market-timing investor starts to buy again. No one blows a whistle when each period ends, and the periods usually aren't as neat as I've pictured them here. What's more, we haven't had a classic declining market, in the major indexes.