Definition
Cyclical stocks are shares of companies whose business performance is heavily influenced by the state of the economy. These companies sell discretionary goods and services that consumers and businesses reduce spending on during downturns. Examples include automotive, airlines, hotels, construction, and luxury goods companies. Cyclical stocks tend to outperform during economic expansions and underperform during recessions. They typically have higher beta than the market. Timing cyclical investments requires anticipating economic turning points.
Example
During an economic recovery, cyclical stocks like Ford or Delta Airlines might rise 50%+ as consumers resume car buying and travel. During recessions, these same stocks might fall 40%+ as discretionary spending collapses.
FAQ
What is Cyclical Stocks?
Stocks whose performance is closely tied to economic cycles.
Why is Cyclical Stocks important?
Cyclical Stocks helps investors evaluate industry terms and make more informed decisions.