Cyclical Stocks

Cyclical stocks mean stocks of companies that are strongly affected by the business cycle. In simple terms, cyclical stocks tend to do better when the economy is strong and worse when the economy slows. Cyclical stocks are important because they can show how investors feel about economic growth. These stocks often include companies in industries such as autos, travel, industrials, materials, and consumer discretionary goods. For example, airline stocks may rise when consumers are spending and travel demand is strong, but fall when recession fears increase. Cyclical stocks are not the same as defensive stocks. Cyclical stocks depend more on economic strength, while defensive stocks may be more stable during downturns.