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Cyclical stocks
2024-03-04 • Updated
While growth stocks were trending up during the last year, now the time has come for cyclical stocks to take the lead! After reading this article, you’ll …
- know what cyclical stocks are,
- learn how and when to trade them,
- and maybe find your favorite ones!
What are cyclical stocks?
Perhaps, some of you have already guessed from the name “cyclical”, that it’s something about cycles. Yes, you’re definitely right! The term ‘cyclical’ refers to a stock of a company, which performance generally follows the economic cycle of expansion, peak, recession, and recovery. Imagine a roller coaster: cyclical stocks rally up in times of economic expansion, hit record highs when the economy is at its peak, fall during recessions and market instability, and finally reverse up and start climbing again amid recovery. Well, the idea is clear: stocks mimic economic cycles. But can you name the real examples or some segments? What do consumers tend to buy more during prosperity but spend less on during a recession? Think a few seconds and then compare with the examples below!
Well, cyclical stocks are usually the companies that offer non-essential goods or services, such as appliances, cars, and entertainment. Besides, cyclical stocks tend to be volatile and produce higher returns during periods of economic strength.
Examples of cyclical stocks
The travel, hospitality, and entertainment industries have been hit hard by social distancing restrictions amid the pandemic. Since the constraints are easing, people are more willing and able to spend money on traveling. Thus, such stocks as Booking, TripAdvisor, Royal Caribbean, Walt Disney, and Carnival are edging higher.
Automakers tend to fall during recessions as consumers save money and keep their old vehicles instead of buying new ones. In opposite, people are more motivated to buy new cars during expansion. Therefore, such stocks as Ford, General Motors, and Ferrari are likely to jump in 2021.
Banks are usually losing their profits during recessions. Most people stop taking mortgages, and loans or even struggle to pay their debts. Besides, interest rates tend to fall before and during recessions, as a result, banks’ profit margins decline. JPMorgan, Goldman Sachs, and Bank of America should rise in 2021 amid the global economic recovery.
It’s significant to pay attention to market trends as sometimes a recession could push up typically cyclical industries. For instance, tech stocks were viewed as cyclical stocks, but the stay-at-home regime and remote work amid the pandemic boosted the demand for cloud services and streaming platforms. Therefore, big tech stocks gained a lot and outrun pre-pandemic levels.
Why are cyclicals good for trading?
Cyclical stocks are worth trading for several reasons.
Volatility
Cyclical stocks tend to be volatile. Thus, it offers a wide range of opportunities for traders to go both long and short. When the economy is growing, cyclical stocks rally up and usually perform way better than non-cyclical ones. Besides, in times of recession, cyclical stocks tend to go down. Therefore, investors who know that from the beginning can open sell orders.
Hidden treasures
It’s a good idea to try finding undervalued cyclical stocks by the end of the recession as when economic recovery comes, the stocks with higher growth potential are likely to rocket! So, it’s better to define them as soon as possible.
Diversification
It’s common knowledge that portfolio diversification is a perfect way to minimize possible risks. Thus, most experienced traders prefer holding both cyclical and non-cyclical stocks as sometimes it’s hard to predict the time of the future recession or expansion.
How to trade cyclical stocks?
- Download the FBS Trader app on your mobile phone to be always able to check the charts and MetaTrader 5 on your personal computer for more complicated tech analysis.
- Make technical and fundamental analyses with the help of our articles and videos.
- Open a position and monitor it!
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Sometimes a chart or a candlestick pattern may provide a decent entry signal if it is located at a certain level. A pin bar is one of the most reliable and famous candlestick patterns, and when traders see it on the chart, they expect the price to change its direction soon.
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How to start trading?
If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.
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How to open an FBS account?
Click the 'Open account' button on our website and proceed to the Trader Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading.
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How to withdraw the money you earned with FBS?
The procedure is very straightforward. Go to the Withdrawal page on the website or the Finances section of the FBS Trader Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.
