What Is Cyclical Stock?
A stock whose performance closely tracks the ups and downs of the broader economy.
The Full Definition
A cyclical stock belongs to a company whose revenue and profits rise and fall closely with the broader economy — think automakers, airlines, homebuilders, and industrial manufacturers. Demand for their products and services expands when consumers and businesses feel confident and contracts sharply when the economy weakens, since big-ticket and discretionary purchases are the first things people cut back on. Cyclical stocks tend to outperform early in an economic expansion and underperform heading into a downturn, the opposite pattern of defensive stocks.
Real-World Example
A homebuilder's stock often surges when interest rates fall and the economy is strong — but the same stock can fall sharply in a recession as new home sales dry up almost immediately.