What are countercyclical stocks?
On the stock market, there are thousands of different shares available to invest in. These shares can in turn be divided into different categories. For example, there are value shares and growth shares or overvalued and undervalued shares . There is also a distinction between cyclical and countercyclical shares . In this article, countercyclical shares will be discussed.
The Definition of Countercyclical Stocks
Countercyclical stocks are stocks that go against the market movement. This market movement is shown in the economic cycle. For example, when the economy picks up, the market moves towards the boom, while when the economy is worse, a recession can be seen.
Share prices generally rise when the market is improving. In this case, the price of countercyclical shares moves in the opposite direction. The prices of countercyclical shares will therefore fall when the economy is moving towards a boom.
An example of the countercyclical stocks
You may wonder why these shares can move against the economic trend. We would therefore like to use an example to explain this further. These shares come from the temporary employment sector, for example. If the economy shrinks and the market becomes uncertain, companies often hire fewer staff. Temporary employment agencies will therefore increase in popularity. Because with a temporary employment agency, companies are not tied to anything.
When the economy picks up again, new people will be offered. The employment agencies will be less popular again and the share prices will fall as a result. The market will also consider defensive shares as countercyclical. They are stable shares, where you will encounter a relatively high dividend payout and low volatility .
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