Counter-Cyclical Stock

DEFINITION of 'Counter-Cyclical Stock'

A type of stock in which the underlying company belongs to an industry or niche with financial performance that is negatively correlated to the overall state of the economy. As a result, the stock's price will also tend to move in a direction that is opposite to the general economic trend, meaning appreciation occurs during times of recession and depreciations in value occur in times of economic expansion.

BREAKING DOWN 'Counter-Cyclical Stock'

Generally, it is harder for companies to become counter-cyclical, because it is fairly difficult to find a business model that thrives in a period where most people do not have money.

Outplacement agency stocks, for example, would be considered counter-cyclical, because these companies help laid-off workers find jobs in exchange for a fee. This type of company would be more successful during times of recession, because there would be more unemployed workers at that point in time compared to times of expansion.

Purchasing counter-cyclical stocks can serve as a good hedge to the standard recessionary pressures that can cause most stocks to decline.

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