Glossary

Cyclical stocks

The performance of cyclical stocks is heavily dependent on the economic cycle - they do well when the economy is booming but very badly when it falls off a cliff...

The performance of cyclical stocks is heavily dependent on the economic cycle- they do well when the economy is booming but very badly when it falls off a cliff. A classic example would be housebuilders, all of whom have done well in the UK over the last ten years in a benign environment of low interest rates and high demand. However, when the economy falters, as interest rates and unemployment rise, these shares all take a battering, whether the underlying building company is good or bad.

Counter-cyclical (or 'defensive') stocks, such as utility and tobacco companies, tend to perform consistently whether the economy is doing well or badly. This is largely because they supply a product which is regarded as a staple- people who smoke do so in good and bad times - demand for which is not highly correlated with the state of the broader economy.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

A balanced portfolio should contain a mixture of cyclical and non-cyclical stocks which can be altered as the economic climate changes.

See Tim Bennett's video tutorial: What are defensive stocks?

Advertisement

Most Popular

Visit/investments/property/house-prices/600840/the-biggest-risk-facing-the-uk-housing-market-right-now
House prices

The biggest risk facing the UK housing market right now

For house prices to stagnate or even fall would be healthy for the property market, says John Stepek. But there is a distinct danger that isn't going …
17 Feb 2020
Visit/economy/600838/money-minute-monday-17-february-good-news-ahead-for-the-uk-economy
Economy

Money Minute Monday 17 February: good news ahead for the UK economy?

Today's Money Minute looks to a week in which we get the latest employment and inflation numbers, plus retail figures for January and a slew of eurozo…
17 Feb 2020
Visit/currencies/600842/eur-usd-euro-slide-against-us-dollar
Currencies

The euro’s slide against the US dollar looks set to continue

The euro has been in a bear market against the US dollar for two years now. And on a broader scale since 2008. A decline like that is telling us somet…
19 Feb 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019