Updated on March 18, 2023
Cyclical stocks are stocks which move as per the business cycle of an economy and can experience sharp up moves as well down moves as per the general economic environment.
These stocks are usually traded in large volumes as investors buy them at the initial phase/starting phase/low point of a business cycle and sell at the high point of the same cycle.
Cyclical stocks refer to stocks of companies engaged in production or offering services of discretionary products like cars, luxury goods, branded clothing, airlines, hotels, hospitality etc.
Characteristics of Cyclical Stocks
Characteristics of Cyclical Stocks are:
a) Consumers prefer products of these companies in a booming economy, but drastically cut down or reduce usage during recessions or economic slowdown.
b) The companies make good profit in a booming economy as consumers have more disposable income for such products.
c) The profits decline during a slowdown or recession as consumers no longer spend on such products/services.