Cyclical industries are industries whose fortunes rise and fall with the economy's rise and fall. In other words, if the economy is doing well and the stock market is doing well, cyclical industries tend to do well. When the economy is doing well, consumers and investors are confident and tend to spend and invest more money than usual. Real estate and automobiles are great examples of cyclical industries.
Your own situation offers you some common-sense insight into the concept of cyclical industries. Think about your behavior as a consumer, and you get a great clue into the thinking of millions of consumers. Think about the times you felt good about your career and your finances. When you (and millions of others) feel good about money and about the future, you have a greater tendency to buy more (and/or more expensive) stuff. When people feel financially strong, they're more apt to buy a new house or car or make some other large financial commitment. Also, people take on more debt because they feel
The economic boom of the late 1990s was in many respects due to an explosion of spending financed by debt. Consumers and businesses felt great about the economy's expansion and spent money accordingly. Among the winning industries were automobiles, real estate, and technology. Choosing strong stocks in these categories meant tremendous profits for investors who did their homework.
confident that they can pay it back. In light of this behavior, what industries do you think would do well?
The same point also holds for business spending. When businesses think that economic times are good and foresee continuing good times, they tend to spend more money on large purchases such as new equipment or technology. They think that when they're doing well and flush with financial success, it's a good idea to reinvest that money to increase future success.
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