If interest rates rise, the cost of borrowing increases, which can negatively impact cyclical companies that rely on borrowing to finance their operations. If the overall consumer purchasing power decreases, fewer people will buy the items in the industries that offer non-essential products or services. Notice that the downturn in the economy forex arena from 2000 to 2002 drastically reduced Ford’s share price, whereas the growth of Florida Public Utilities’ share price barely blinked at the slowdown. This is because cars are considered discretionary goods that are cyclical to the economy. When there is a recession, people choose not to spend on a new car in order to save money for basic needs.

What sectors are most cyclical?

Cyclical stocks can offer investors an opportunity for growth during periods of economic expansion. As the economy grows, so too does demand for products and services offered by cyclical industries. When the economy starts to slow down, consumer cyclical companies experience declining sales and earnings putting pressure on their stock price. The consumer cyclical sector tends to underperform most other sectors when the economy is weak. However, the sector typically outperforms most sectors in the early stages of an economic recovery. For the 10-year period beginning in 2006, the consumer cyclical sector led all sectors in the economic recovery with a total return of 134%.

What Are Some of the Best Cyclical Stocks?

1. Even though investing in stocks can be risky, some types are more volatile and unpredictable than others.
2. Some businesses might even see their businesses boosted during recessions.
3. Global economic conditions can also impact the performance of cyclical stocks.
4. Identifying cyclical stocks involves understanding the business cycle and recognizing industries that closely follow its trends.

When How to buy dogecoin stock the economy is down, the prices of cyclical products and services also decrease, affecting the stock prices. Cyclical companies follow the trends in the overall economy, and therefore their stock prices are volatile. Non-cyclical companies produce consumer staples that are always in demand regardless of the state of the economy.

Finding noncyclical stocks with TradingView

With the interest rate cycle kicking off in the US, stocks that are exposed to consumer and business spending are starting to see a favorable economic outlook. The stock market has also undergone a correction following the victory of President-elect Donald Trump and the Republican Party in the 2024 US Presidential Election. This correction has seen stocks that respond favorably to lower regulations, such as traditional energy, oil stocks, and banks, rise. At the same time, others, particularly green energy stocks, have not fared so well. While traditionally considered non-cyclical, some tech stocks have shown cyclical behavior as their performance can depend on economic conditions and discretionary spending. Adding cyclical stocks to your portfolio can help diversify your investment portfolio and protect you from losses in other market areas.

Do you own a business?

Cyclical stocks are known for following the cycles of an economy through expansion, peak, recession, and recovery. Most cyclical stocks involve companies that sell consumer discretionary items that consumers buy more during a booming economy but they spend less on them during a recession. Consumer cyclical companies, also referred to as consumer discretionary companies, are particularly exposed to fluctuations in consumer spending. Consumer spending is affected by economic factors such as interest rates, inflation, unemployment and wage growth. When economic conditions begin to deteriorate, consumers are less inclined to spend their money on non-essentials, for example, flat screen televisions, vacations, new clothes, and new cars.

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Note that while ever cycle will run through the below stages, no one phase is necessarily considered “first.” But we do have to make money to pay our team and keep this website running! TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear.