What are Cyclical Stocks
What are Cyclical Stocks?
Cyclical Stocks are the stocks that’s price is affected by macroeconomic or systematic changes in the economic cycle. Cyclical Stocks essentially follow the cycles of an economy – expansion, rebound, recession, and recovery.
The cyclical impact of the Covid-19 pandemic on the stock market is commonly seen. Economically sensitive stocks witnessed have seen a decline through the initial economic downturn. Most of the company’s shares saw a subsequent rebound as the economy began to recover.
Cyclical stocks are the stocks that consumer purchase during a booming economic period but spend less during a recession period. These stocks are generally the opposite of defensive stocks.
Cyclical stocks include discretionary companies, such as Starbucks, Nike, Coca-Cola while defensive stocks are staples, such as Campbell soup.
Examples of Cyclical stocks
Below we have mentioned some examples of the cyclical stocks.
1. Banks- Due to recession demand for banking products get reduced, including mortgages, auto loans and credit cards, and some consumers who already have loans struggle to pay their debts.
2. Technology- Almost all the tech stocks are cyclical.
3. Automakers- In recessions period consumers do not buy new vehicle and are more likely to buy during the time of prosperity.
4. Restaurants- In poor economic cycle people try to eat at their home more often, and so Food stocks often suffer as a result.
5. Manufacturing- Manufacturing companies tend to experience plunging demand in physical goods during economic adversity.
6. Airlines and Hotels- During strong economic time people tend to be more willing and able to spend more money on airline tickets and hotels than stringent times.
Advantage of Cyclical Stocks
• Potential to generate higher returns.
• Good wealth for investors.
• Quick profit return
• Easy to identify in stock market.
• Cyclical stocks performance can be easier to identify.
• Higher liquidity
Disadvantage of Cyclical Stocks
• Include higher risk
• Depend upon the economic factors
• Uncertain movement
• Higher volatility