^{This article first appeared in our newsletter on Sunday, 7, September 2025. Subscribe to know where your money should be. All figures have been updated.}

For many Nigerian investors, the term “stock market” brings to mind two extremes: the dizzying heights of a bull run or the gut-wrenching fear of a crash. But the market isn’t just a random series of booms and busts. It moves in a repeatable rhythm, which the experts call “a cycle”.

A market cycle is the natural ebb and flow of asset prices driven by a combination of corporate profits, economic conditions, liquidity, and, most critically, investor psychology. Understanding this pattern, from the euphoria of a peak to the despair of a bottom, is the single most important skill for long-term survival and success in any market, especially the Nigerian Stock Market.

The Four Phases of Every Market Cycle

To understand today’s market, we must first look at the past. The 2008 crash of the Nigerian Stock Exchange (a consequence of Nigeria’s exposure to the global financial crisis) is a textbook example of a full, brutal cycle that remains seared into the memory of a generation of investors.

1. Accumulation (The Quiet Bottom)

Every bear market ends. The accumulation phase begins when the storm has passed and the headlines are still bleak. After the 2008-2009 crash, pessimism was absolute. The public had sworn off stocks forever. Yet, this is when valuations become incredibly cheap. Quietly, insiders, pension funds, and long-term value investors (the “smart money”) begin to buy, or accumulate, assets from those who have given up hope. Volumes are low, and there is no fanfare, just the slow, steady transfer of ownership from weak hands to strong hands.

2. Mark-up (The Hopeful Climb)

This is the phase investors love. A clear uptrend begins as positive sentiment slowly returns. In the years following the 2008 crash, the Nigerian market began a multi-year recovery. Corporate earnings improve, more sectors join the rally, and trading volumes pick up. The financial media turns optimistic.

This brings us to the first half of 2025. The market opened the year with confident buying, and by June 30th, the NGX All-Share Index (ASI) had posted a solid +16.57% year-to-date gain. This was a classic, healthy mark-up phase, building a strong foundation for the rally to come.

3. Distribution (The Euphoric Peak)

This is the most dangerous phase because it feels the best. The market has had a long, profitable run, and greed overtakes fear. Everyone is a stock market genius. This is precisely what happened in Nigeria in 2007 and early 2008. The public piled in, taking out loans to buy shares, and a sense of “this time is different” permeated the air.

However, beneath the euphoric surface, the smart money that bought during the accumulation phase begins to quietly sell, or distribute, their shares to the enthusiastic but late-arriving public.

We saw a flash of this euphoric energy in July 2025. The market went into overdrive, surging +16.57% in that month alone; a “melt-up” that took the ASI to nearly 140,000 points. This kind of explosive, vertical move is often a sign of late-stage mark-up behaviour, where the last buyers are rushing in, and a transition toward distribution is near.

4. Mark-down (The Painful Descent)

After the peak, reality sets in. The trend reverses, and lower lows follow lower highs. In 2008, this was the crash. Initial selling turned into panic, and margin calls forced leveraged investors to liquidate, causing a downward spiral. Those who bought at the top were wiped out. This painful decline continues until valuations become so compelling that the cycle can begin anew with accumulation.

So, Where Are We in the Cycle Now? (September 2025)

The 2025 market is not 2008, but the patterns of psychology and capital flow are timeless. Here’s what the data is telling us:

• The Mark-Up Has Matured: The ASI now sits around 140,545.69, holding on to a massive ~+36.6% year-to-date gain. The easy, broad-based gains are likely behind us.

• Leadership is Splitting: This is the most critical signal. The rally is no longer lifting all boats. While defensive, institutional favourites like the NGX Pension Index (+48.12% YTD) and NGX Premium Index (+50.36% YTD) remain strong, cyclical sectors are falling behind. The NGX Oil & Gas Index is down -10.79% YTD.

A Practical Guide to Navigate This Market

Remembering the lessons of 2008, the goal is not to perfectly time the top but to manage risk intelligently based on the current phase.

1. Label the Phase and Act Accordingly: We are in a late mark-up / early distribution environment. This is the time to be prudent, not greedy. It argues for trimming profits in high-flying stocks that have had massive runs, rather than chasing them higher.
   
2. Follow the Breadth: The widening gap between the Pension/Premium indices and the Oil & Gas index is your most important dashboard. As long as this dispersion continues, the market is getting narrower and thus more fragile.
   
3. Watch the Reaction to News: In a distribution phase, good earnings reports are often met with selling (“selling the news”). If you see strong results from a company and its stock fails to rally, it’s a major red flag that buyers are exhausted.
   
4. Expect Rotation, Not an Immediate Collapse: Cycles roll over; they don’t typically crash overnight. The current phase could last for months. The key is to shift your portfolio toward quality companies with strong cash flow, clean balance sheets, and reliable dividends that can weather a potential downturn better.

The Bottom Line: The ghosts of 2008 teach us that cycles of greed and fear are part of the market’s DNA. The 2025 rally has been powerful, but the current evidence suggests a shift in character. By recognizing the signs of a late-stage mark-up and the beginning of distribution, investors can shift from aggressive offence to prudent defence, ensuring they keep the hard-won gains from the climb.