Stock market cyclical sectors

Just like in war and football, investing is about offense and defense.

Stock Sectors - The 11 Classic Stock Market Sectors

Cyclical and non-cyclical stocks should be part of your arsenal. When the market senses bad times coming in the economy, it will move toward non-cyclical or defensive stocks and away from cyclical issues.

The stock prices of cyclical and non-cyclical stocks relate to how the business cycle changes.

Cyclical stocks move more dramatically, both up and down, with the cycle, while non-cyclical stocks show little movement relative to the cycle. You may want a new car, but if your budget is very tight, it may have to wait.

Cyclical stocks represent those items and services for consumers and businesses that they buy when confidence in the economy is high. Two of the sectors, Consumer Staples and Utilities, are non-cyclical stocks and the rest are cyclical.

Everyone from consumers to businesses needs water, gas, and electricity. When the economy is growing, these stocks tend to lag behind, however during economic downturns; their steady returns may look good.

Another classic example of non-cyclical stocks is household non-durable goods, such as toothpaste, toilet paper, cleaning materials. Automobile companies are classic cyclical stocks. When the economy is good and people are working, car sales do well. However, if there are layoffs and uncertainty or high interest rates, people may decide to hold on to their car another year.

Businesses expand during good times.

They buy new equipment and build new facilities, so equipment sales and construction are cyclical stocks. When the economy cools, businesses run down inventory, put off expansions, and delay purchases.

Cyclical stocks such as steel manufacturing and sales suffer when business slows down. You should understand that this relative safety comes with a price like everything else in the market and that is missing growth opportunities in an up market.

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The Bull Sector - Stock Market Sector and Industry Lists

Updated September 24, You have several means to apply both offense and defense to your investing, including: Mix of stock, bonds, and cash Diversification by size and industry Mix of value and growth stocks Another tool you have is mixing cyclical and non-cyclical stocks in your portfolio to counteract a changing business cycle.

Articles in This Series Introduction to Stocks Understanding Stock Share Terms Understanding Stock Diversification Understanding Cyclical and Non-Cyclical Stocks Stock Sectors - How to Classify Stocks Making Money with Dividends Understanding Stock Splits What Market Indexes Tell Us Major Stock Exchanges Look into the Future with Stock Market Indexes Back of Main Article. Get Daily Money Tips to Your Inbox Email Address Sign Up. There was an error.

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