What are cyclical stocks?

Cyclical stocks are stocks of companies that are highly sensitive to the economic cycle. These companies typically perform well during periods of economic expansion and may experience significant declines during periods of economic contraction. Some examples of cyclical industries include technology, consumer discretionary, and materials.

Do cyclical stocks outperform the market?

Cyclical stocks and their companies have a direct relationship to the economy, while non-cyclical stocks repeatedly outperform the market when economic growth slows. Investors cannot control the cycles of the economy, but they can tailor their investing practices to its ebb and flow.

How do cyclical stocks affect stock prices?

Cyclical companies follow the trends in the overall economy, which makes their stock prices very volatile. When the economy grows, prices for cyclical stocks go up. When the economy turns down, their stock prices will drop. They follow all the cycles of the economy from expansion, peak, and recession all the way to recovery.