Counter-Cyclical Stock

A stock that has financial performance highly negatively correlated with the rest of the economy. This is usually rare, as few companies do well when the economy is doing poorly and consumers are cash strapped. An example would be a pawn shop, which would get more business in a recession as cashstrapped consumers pawn items to raise cash.

Gold stocks used to be considered counter-cyclical stocks, but in recent years have shown positive betas (which imply gold stocks swing in tandem with the major market indices.) The reason for their being regarded as counter-cyclical stocks is mainly due to the 1970-80s hyperinflation episode in which gold did very well. This shows that counter-cyclical stocks may only be so for temporary reasons that are characteristic of a certain period and the correlation may not exist in every recession or downturn. This is especially useful to keep in mind and as usual, investor caveat.

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