Quantitative Trading

Cyclical Stock

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A cyclical stock is a stock whose performance is closely tied to the health of the economy or business cycle. These companies tend to do well during economic growth and struggle during downturns.

🔄 What is a “Cyclical Stock”?

  • The word “cyclical” comes from the economic cycle:
    Expansion → Peak → Recession → Recovery
  • Cyclical stocks rise in booms and fall in busts.
  • These companies sell non-essential goods or services — things people buy more of when they feel confident and have money to spend.

📊 Examples of Cyclical Sectors

SectorWhy it’s cyclicalExample Stocks (NZ/global)
Consumer DiscretionaryPeople cut back on optional spending in hard timesSky TV, Kathmandu, Tesla, Nike
Travel & TourismTravel demand falls in recessionsAir New Zealand, Booking.com
Media & AdvertisingAds and subscriptions get cut during slowdownsSky Network TV, Meta
AutomotiveBig purchases drop when incomes are tightFord, Toyota
Construction/Real EstateHome sales and construction fall during rate hikesFletcher Building, REITs
Banking (partially)Loan demand & defaults fluctuate with economyANZ, Westpac

🏠 Example: Why Sky Network TV (SKT.NZ) is Cyclical

  • Sells discretionary content (sports, movies, entertainment)
  • When economy slows:
    • Households cancel or downgrade subscriptions
    • Businesses cut ads → Sky earns less ad revenue
  • When economy recovers:
    • People resubscribe
    • Ad budgets return → revenues grow

🛡️ Opposite of Cyclical: Defensive Stocks

FeatureCyclical StockDefensive Stock
Demand in recessionFallsStays steady
Type of spendingDiscretionary (non-essential)Essential (food, health, utilities)
VolatilityHighLow
ExamplesSky TV, Tesla, NikeContact Energy, Fisher & Paykel Healthcare, supermarkets

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