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Cyclical Stocks

Cyclical stocks are shares of companies whose performance is closely tied to the economic cycle. These stocks tend to perform well during periods of economic expansion when consumer demand is high but decline in value during recessions or economic slowdowns. Examples of cyclical industries include automotive, luxury goods, and travel. Investors in cyclical stocks should be aware that their value may fluctuate significantly depending on the state of the economy.

Example

A hotel chain’s stock may rise as more people travel during a booming economy but fall during a recession when fewer people can afford vacations.

Key points

• Cyclical stocks are shares of companies that perform in line with the broader economy.

• They do well during economic growth and decline during recessions.

• Examples include automotive, travel, and luxury goods companies.

Quick Answers to Curious Questions

Cyclical stocks are stocks of companies whose performance fluctuates with the economic cycle, doing well during expansions and poorly during recessions.

Industries like automotive, construction, travel, and luxury goods tend to have cyclical stocks due to their sensitivity to economic conditions.

The risk is that cyclical stocks may decline significantly during economic downturns, as consumer demand for their products or services decreases.