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Industry and Economic Cycles
By Tim McIntosh MBA CFP® MPH http://www.SIPLLC.com
The distinction between cyclical stocks and defensive stocks lies in how closely related the stock’s performance is to industry and economic cycles.
Cyclical Stocks
Stocks that operate in industries that are highly correlated to the strength of the domestic economy are considered to be cyclical stocks.
For example, the construction and automobile industries are generally considered cyclical industries given that demand for their products is highly related to the current economic environment. In periods of weak or declining economic growth, demand for automobiles and new construction products decline, thus resulting in a decline in earnings for companies operating within those industries.
Defensive Sticks
Defensive stocks are viewed as being less susceptible to fluctuations in the overall economy.
For example, since demand for food products is generally considered to be less dependent on the strength or weakness of the overall economy, food stocks are generally considered defensive stocks.
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Filed under: Investing, Portfolio Management | Tagged: cyclical stocks, defensive stocks | 1 Comment »
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