Counter-Cyclical Stock

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
  2. Procyclic

    A condition of positive correlation between the value of a good, ...
  3. Economics

    A social science that studies how individuals, governments, firms ...
  4. Cyclical Industry

    A type of an industry that is sensitive to the business cycle, ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in ...
  6. Recession

    A significant decline in activity across the economy, lasting ...
Related Articles
  1. The Ups And Downs Of Investing In Cyclical ...
    Investing

    The Ups And Downs Of Investing In Cyclical ...

  2. Cyclical Versus Non-Cyclical Stocks
    Options & Futures

    Cyclical Versus Non-Cyclical Stocks

  3. Evaluating Grocery Store Stocks
    Economics

    Evaluating Grocery Store Stocks

  4. What are defensive stocks?
    Investing

    What are defensive stocks?

comments powered by Disqus
Hot Definitions
  1. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  2. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  3. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  4. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
Trading Center