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.

  1. Business Cycle

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

    A period of time during which sales of a product or business ...
  3. Recession

    A significant decline in activity across the economy, lasting ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in ...
  5. Economics

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

    A type of an industry that is sensitive to the business cycle, ...
Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: First Trust Cnsmr Staples AlphaDEX

    Read an in-depth analysis of the First Trust Consumer Staples AlphaDEX Fund, a strong defensive fund with a unique stock selection process.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI EAFE Small-Cap

    Read an in-depth analysis of the iShares MSCI EAFE Small-Cap Fund, a well-managed exchange-traded fund that tracks small-cap international stocks.
  3. Investing

    The Ups And Downs Of Investing In Cyclical Stocks

    This strategy can be profitable but only if you know when to dump these stocks.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Economics

    Evaluating Grocery Store Stocks

    Retail grocers are no longer a homogeneous group selling products in the same manner. Find out how to evaluate these companies.
  6. Investing

    Is it Time to “Buy” Inflation?

    Based on recent data from the Treasury-Inflation Protected Securities (TIPS) market, it would seem that most investors aren’t worried about inflation.
  7. Economics

    How the Fed Fund Rate Hikes Affect the US Dollar

    Learn about the effects the federal funds rate on the U.S. dollar. Understand what happens when the Federal Reserve increases interest rates.
  8. Investing Basics

    5 Common Misconceptions About Dividends

    Here are five common misconceptions about dividends that are important to know.
  9. Investing

    What a Fed Delay Means for the ECB & BoJ

    The Fed’s continued delay has repercussions for more than just the U.S. economy and markets. The ECB and the BoJ may support the case for stocks in Europe.
  10. Economics

    Understanding Income Inequality

    Income inequality refers to the uneven distribution of income across a single economy.
  1. What factors are the primary drivers of share prices in the internet sector?

    Economic conditions such as interest rates, unemployment and wage growth drive share prices in the Internet sector. This ... Read Full Answer >>
  2. What's the best investing strategy to have during a recession?

    During a recession, investors need to act cautiously but remain vigilant in monitoring the market landscape for opportunities ... Read Full Answer >>
  3. What is the best way to diversify an investment portfolio?

    Diversification is a method used by an investor to insulate his portfolio from the risk of a single investment going bad. ... Read Full Answer >>
  4. What techniques are most useful for hedging exposure to the metals and mining sector?

    The metals and mining sector is largely counter-cyclical, meaning it outperforms the market during bad economic times but ... Read Full Answer >>
  5. What are defensive stocks?

    The term defensive stocks is synonymous to non-cyclical stocks, or companies whose business performance and sales are not ... Read Full Answer >>
  6. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!