The term cyclical stock denotes the stock of businesses whose sector is vulnerable to economic fluctuations.
Cyclical stocks differ from defensive stocks in that defensive stocks represent producers of basic necessities which are always in demand, such as staple foods, power, water and telecommunications. Cyclical stocks represent providers of goods and services which are not in constant demand.
Examples of cyclical stocks include shares in companies in the real estate and travel sectors – both of which are highly vulnerable to fluctuations in overall spending power. The stocks of commodities producers and their suppliers are also cyclical because demand for commodities rises and falls along with the purchasing power of consumers. The stocks of consumer goods manufacturers and consumer service providers may be considered cyclical for the same reason.
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