What are cyclical stocks and how do they act on the stock market?

Cyclical stocks are one of the most characteristic of equities. Because through them, higher returns can be achieved in the most expansive economic periods. Although in return, recessives suffer significant depreciation in their prices. Not surprisingly, its business lines have a very notable link with economic cycles. To the point that they make more profit in the bullish part of the cycle and at the reverse.

They belong to sectors as diverse as consumer discretionary, financials or the different tourist segments (airlines, hotel groups, reservation centers, etc.). In any case, another group of companies listed in equities that react more slowly to the appearance of new economic periods also stands out. But that in the end they point very vertical ups and downs in the quotation of their prices. As in the specific case of industrial companies. All of them maintain a very well defined trend in periods of boom and bust in the economy. Becoming highly appreciated candidates to open and close positions in the financial markets, respectively.

Of course, if there is a financial market that defines the sentiments of a clearly expansive economy, that is none other than the Nasdaq technology. In the opposite direction, that is to say, anti-cyclical, gold futures. With a totally divergent response from both in each of the periods that determine the situation of the economy. To the point that the monetary flows of large investors go from one to another in the face of any change in the prospects for global growth.

How to act in these scenarios?

With this class of securities you can carry an investment strategy that is very advantageous for retailers. As simple as taking positions in bullish periods and selling in recessions. It is a rule that is always present in the financial markets. Where the money goes to the sectors that offer greater possibilities of revaluation. To opt for this action, first of all it will be necessary to identify which are the values ​​of these characteristics that are integrated into the Spanish continuous market. As well, Arcelor, Sol Meliá, Indra, NH Hoteles, Mapfre or Acerinox They are some of the most relevant representatives of this select group of national equities. They are responsible for marketing products that are usually expensive and are not satisfied as basic necessities. Where its consumption is postponed for better situations.

How to act in these scenarios?

One of the keys to detecting them is based on the increase in the volume of hiring that is generated in the most positive phases for the economy. With a strong presence of buying orders with respect to the sellers. It will be the definitive signal to enter their positions for periods of permanence in the medium and long term. Because business cycles have a very long duration which can be extended for many years. Although it is in the irruption phase of expansionary cycles where these stocks perform better than their competitors. With appreciations, which in most of the trading sessions, are above 5%.

Because in effect, one of the main characteristics of cyclical stocks is that during bullish periods they always behave much better than the rest of the stock market proposals. While in recessions, their depreciations are more striking. When money leaves countercyclical values ​​to take refuge in cyclicals it is a clear sign of confidence on the part of financial markets. It will be the moment to take positions in some of its representatives.

During the hardest period of the economic crisis, between 2008 and 2010, a cyclical stock par excellence such as Arcelor left 45% of its valuation in the national continuous market. Going from 45 to 25 euros in just two years. Quite the opposite of a countercyclical like Ebro Foods, which even rose by around 16%. From 12 to 14 euros per share. With a lag in the analyzed period between both values ​​greater than 60% and that perfectly summarizes the difference between two opposite concepts of understanding the stock market.

Proposals to contract

The countercyclical sectors, on the contrary, are made up of companies that generate goods and services that maintain a very stable demand. They are represented by business segments as relevant as utilities, food or basic necessities. There is a very compelling reason to explain this scenario and it is because in times of economic recession, consumers stop traveling or buying vehicles. But instead, they continue to feed themselves and consume the basic energies for the maintenance of their home. Consequently, the companies that provide these services suffer less severely from the effects of the economic crisis. With less wear on their prices and that may even rebound against the general sentiment of the financial markets.

For this reason, it is not surprising that in one way or another they are considered as defensive values ​​or refuge. For a reason that is very simple to understand and that is none other than these cycles of the economy deal with a better behavior in their prices. For the same reason that they behave worse than the rest in the most critical phases of economic growth. Or even in periods with an indefinite trend, like the current one. Furthermore, these kinds of values ​​are more prone to distribute dividends among its shareholders. With returns on savings between 3% and 8%, as a deterrent to keep its shareholders in the most turbulent periods for the international economy.

Tips not to get lost

If the values ​​that present these peculiar characteristics are characterized by something, it is because they are more vulnerable to economic cycles. And therefore they require a substantially different treatment. Both when it comes to entry times and when you have to undo positions. Where you can start from a series of recommendations that we expose you below.

• You can configure an investment strategy based on the moment in which equities live, but on the evolution of the international economy. Conditions will be very different from one situation to another. Like there will be more sensitive values ​​to be hired at one time or another. You will have no choice but to differentiate these periods that occur in the international situation.
• Not because the international economy is not doing well, they have to be all the securities detrimental to your personal interests. That is, they cannot be profitable for improve balance from your checking account.
• One of the most effective strategies for different economic scenarios is buy or sell the shares at the beginning of each of the periods. Anticipation will be one of the keys to improving performance margins. Under very satisfactory proportions for your interests as a small or medium investor.
• If you want to make a balanced investment portfolio for the different scenarios of the international economy, you will have no choice but to include the values ​​of the electric sector and banking. They collect everything necessary to balance the tendency of both situations. Either way, it will be a very effective strategy and not at all aggressive.
• You have to be determined to make decisions in periods of economic expansion. Via determined actions, but very thoughtful about what you have to do at all times. In any case, you should avoid any phase of doubts that could harm your interests in the equity markets.

Cyclical stocks par excellence

If you want to make your new investment portfolio with expansive values, some sectors of the stock market should not be missing. Among them, the bank since it is in this period where their shares are most appreciated. Above other business segments. To the point that more than remarkable returns to savings can be collected. On many of the occasions even above 10%. In any of the financial entities that are listed on the financial markets.

Another of the most expansive sectors in this period corresponds to new technologies. This is a much more aggressive bet but one that carries a very strong reward. Because indeed, their revaluations stand out above other more stable values. You have many proposals to choose from, although it will be very convenient for you to detect the values ​​with the best technical aspect. And if they are in an uptrend, then much better for your personal interests.

Either way, the key to success will be entry levels at these values. Not in vain, they will determine the profitability of your personal accounts. Just like you must know how to sell. Perhaps the most complicated part of this very special process in the equity markets. Because you should be very attentive to when the expansionary phases in the economy end. Like recessive periods where you will have no choice but to adopt a much more defensive posture. With no other objective than to protect your assets with greater efficiency and guarantees of success.