Cyclical Stock

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DEFINITION of 'Cyclical Stock'

An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies that sell discretionary items that consumers can afford to buy more of in a booming economy and will cut back on during a recession. Contrast cyclical stocks with counter-cyclical stocks, which tend to move in the opposite direction from the overall economy, and with consumer staples, which people continue to demand even during a downturn.

INVESTOPEDIA EXPLAINS 'Cyclical Stock'

Cyclical stocks rise and fall with the business cycle. This seeming predictability in the movement of these stock's prices leads some investors to try to time the market by buying these stocks at the low point in the business cycle and selling them at the high point. Examples of companies whose stocks are cyclical include car manufacturers, airlines, furniture retailers, clothing stores, hotels and restaurants. When the economy is doing well, people can afford to buy new cars, upgrade their home furnishings, go shopping and travel. When the economy is doing poorly, these discretionary expenses are some of the first things consumers will cut. If a recession is bad enough, cyclical stocks can become completely worthless as companies go out of business.

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    The difference between a cyclical stock and a non-cyclical stock is that a cyclical stock is highly correlated with movements ... Read Full Answer >>
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    Cyclical stocks tend to be highly correlated with the overall business cycle, so an investor can invest in a cyclical stock ... Read Full Answer >>
  3. Should I buy and hold a cyclical stock for long-term gains?

    Cyclical stocks should be avoided for long-term gains. They tend to be in competitive industries in which companies do not ... Read Full Answer >>
  4. How can I use interest rates to indicate the right time to buy a cyclical stock?

    Interest rates can be used to indicate the right time to buy a cyclical stock based on whether they are increasing or decreasing. ... Read Full Answer >>
  5. How does an economic downturn affect a cyclical stock?

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  6. Why is buying a utility stock known as defensive move?

    Investors consider utility stocks to be defensive due to the widely-held belief that these stocks will perform well in the ... Read Full Answer >>
  7. 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 >>
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