*This blog post is my personal opinion only and may contain affiliate/referral links.
Some stocks just go with the flow.
They call them cyclical stocks for a reason, because they tend to perform well when the economy is doing well. These companies offer goods and services that many buy and consume during economic uptrend; conversely, the same buyers and consumers appear to turn it down during down economy.
In contrast, non cyclical stocks are less volatile whether the economy is good or bad. Take for example soap, toothpaste, soft drinks and just about anything we “always” need. One can add food, water, power and gas to this list too.
The ongoing Corona virus pandemic paints a clear picture of how these cyclical stocks have performed from the peak of the lockdown to the recovery that we are having at the moment. Some countries are easing the restrictions faster than others, so for illustrative purpose, we can look at how some of these (mostly) vaccinated countries are progressing in normalizing these cyclical stocks.
- Airline Stocks
Remember the time when major airlines United, American, Southwest and others get their first federal aid from the US government? For weeks these carriers are just parked on the airport tarmac and no passengers are allowed to fly.
It’s been months since these airlines have flown again, though in limited flights, but we can see how the travel industy is picking up again. Southwest is up 40.5% year to date and United Airlines is at 43.6%. The Transportation sector in general is in a surge thanks to the reopening of more businesses.
2. Hotel and Lodging Stocks
There is a correlation with travel industry and tourism bouncing back hand in hand. As more people travel whether for business or pleasure, they will be needing accomodation on their destination.
Although there is still strict protocol on how hotels would welcome and manage guests, we can see the effect of many vaccinated people becoming more comfortable with traveling and staying in hotel rooms again. Hilton is up 27% and Marriot climbs at 21% YTD.
3. Restaurant Stocks
On the same service industry is the re-emergence of the restaurants around towns and cities. Being able to dine in is a big boost for waiters, cooks, owners and the thousands employed on the restaurant business.
It goes without saying that when people fly on airplanes and lodge in a hotel, they will be needing someplace to eat, so again we can see how these three cyclical stocks are very much interlinked with each other.
Thanks for reading.