What does cyclical stock mean?

While there are a variety of industries in the economy, if you look at it from an investment point of view, the industry can actually be simplified into three, which are cyclical, growth, and defensive industries, and stocks can be divided into these types of stocks, which are cyclical stocks what does it mean? Cyclical stocks are stocks whose performance shows a high positive correlation with the economic cycle. In fact, most industries are difficult to avoid the impact of the economic cycle, in which the degree of cyclicality of the industry are mainly these:

1, bulk raw materials industry: iron and steel, non-ferrous metals, chemicals, etc., bulk raw materials is the basis of industry, its price, the profits of the relevant enterprises are also highly correlated with the economic week.

2, construction materials industry: cement, etc.. This is related to the economic cycle of construction demand changes.

3, capital-intensive areas: construction machinery, machine tools, heavy trucks, equipment manufacturing and so on.

4, the field of non-essential consumption: cars, high-grade liquor, high-grade clothing, luxury goods, airlines, hotels and so on.

The performance of such industries is affected by people's income and has a high degree of correlation with the economic cycle. When the economic cycle is in an expansionary phase, the advantage of choosing cyclical stocks is greater, and if it is not in an expansionary period, investors can also look toward defensive and growth-oriented industries.

Cyclical stocks stocks are stocks whose prices are affected by macroeconomic or systemic changes in the overall economy. Cyclical stocks can follow the economic cycle through expansion, peak, recession, and recovery.

Cyclical stocks usually refer to companies that sell non-essential goods that consumers can afford during boom times. Alternatively, cyclical stocks are also companies where consumers reduce spending and cut back during recessions. Defensive stocks are usually the opposite of cyclical stocks. They include the consumer goods category, which consists of goods and services that people continue to demand during various business cycles, even recessions.

Cyclical stocks rise and fall with the economic cycle. This seeming predictability in the price movements of these stocks leads some investors to try to time the market. They buy stocks at the low points of the business cycle and then sell them at the high points. Companies whose stocks are cyclical include automakers, airlines, furniture retailers, clothing stores, hotels, and restaurants. When the economy is doing well, people can afford to buy new cars, upgrade their homes, shop and travel. When the economy is bad, these discretionary expenses are the first ones consumers cut back on. If the recession is severe enough, cyclical stocks can become worthless and companies can go out of business.

Cyclical stocks are considered more volatile than noncyclical or defensive stocks, which tend to be more stable in weak economic times. However, they offer greater growth potential because they tend to outperform the market during periods of economic strength. Investors seeking long-term growth and managed volatility tend to balance their portfolios with a combination of cyclical and defensive stocks. Examples of cyclical stocks

Cyclical stocks tend to be further delineated by durable goods, intolerable goods and services. Durable goods companies are involved in the production or distribution of physical goods with a life expectancy of more than three years. Companies operating in this segment include automakers such as Ford, appliance makers such as Whirlpool, and furniture makers such as Ethan Allen.

Measures of durable goods orders are indicators of future economic performance. When durable goods orders rise in a given month, it can indicate stronger economic activity in the following months.

Non-durable goods companies produce or distribute soft goods with a life expectancy of less than three years. Examples of companies operating in this segment include sportswear maker Nike, as well as retail stores such as Nordstrom and Target.

Services are a separate cyclical stock class because these companies don't produce or distribute physical goods. Instead, they provide consumers with services that facilitate travel, entertainment and other leisure activities. Walt Disney (DIS) is one of the best-known companies operating in this space.