4 Cyclical Stock Sectors to Watch in a Growing Economy

Automobiles, retail, and hospitality sectors are cyclical stock sectors. They have notorious bright performances on the economic upswing.

The stock price growth for Ford was huge from around $2 up to over $12. It is a significant rebound. From 2010-2020, Walmart, the retail giant’s dividend yield increased to 1.6% and the overall stock price rose by 200% .

These primary industrial sectors show good results during the growth phase with significant industry profitability and reasonable returns for investors.

Economic cycle to study up and down on stock market, booming or recession, business cycle for marketing, statistic or data analysis concept, businessman with magnifier on economic cycle diagram.
Economic cycle to study up and down on stock market, booming or recession, business cycle for marketing, statistic or data analysis concept, businessman with magnifier on economic cycle diagram.


Analyzing U.S. automobile sales from 2010 to 2020, one can see a boom following the recession that closely aligns with peaks in consumer confidence . For example, after the deep downturn in 2009, U.S. car sales rebounded from 10.4 million units to almost 17 million by 2016 . Returning sales figures were not merely a sign of the recovering economy but a signal of greater optimism. Therefore, investors engaged with the sector during the economic recovery could achieve substantial results. This group can include those who entered the market when the economic signs were already in the positive dynamics to witness the return in the years to follow. In the specific case of automobile sales and recovery after the recession, the average annual returns on investors spanning a few years of sector recovery exceeded 15%.

History also seems to suggest a vivid example of a similar scheme. Having a look at the largest automobile companies such as General Motors and Ford, the same cyclical pattern of extreme price drop followed by rebound can be noticed. Ford’s stock, for example, increased from about $2 in 2009 to $15.17 in 201

Willie Buffet, one of the most famous investors, has always been a proponent of cyclical stocks, automobile sector among them, saying “Be fearful when others are greedy, and greedy when others are fearful.” The period of economic boom is excellent for investment; however, most non-cyclical stocks grow relatively modestly given the overall positive dynamics in the economy. To illustrate, let us look at the S&P 500 Automobiles Industry Index, which measures publicly traded automobile companies in the U.S. During the rebound from 2010 to 2015, this index achieved a cumulative return of about 180%, including dividends . To put this number in perspective, let a modern investor allocate $10,000 to the automobile sector at the beginning of 2010. By the end of 2015, the investment will have grown to almost $28,000 assuming reinvestment of dividends. This is in striking contrast to the products of non-cyclical companies that generally grow less quickly, although are more even in their patterns of increasing.

Luxury Goods

The luxury goods market can be considered to be a prime example of a cyclical industry, which thrives during periods of prosperity when consumer sentiment is good because confidence and disposable income are high. The luxury goods market is made up of high-end brands that are known for their quality and exclusivity. This sector encompasses fashion brands, jewelry, and even cars. There is plenty of evidence that luxury brands have not only shown resilience in the face of economic catastrophe but have seen terrific growth spurts during times of recovery. For instance, as outlined in Bain & Company’s annual global luxury study, after the global financial crisis hit in 2008, the luxury goods market came roaring back. By 2010, the market for personal luxury goods around the world reached €173 billion, representing an 8% increase from the previous year. This growth didn’t slow down, reaching a staggering €217 billion in 2013.

Investors have discovered that they can make enormous gains by timing their investment in the luxury goods market appropriately. For example, luxury stocks, such as those of LVMH and Gucci, have historically outperformed the market as a whole during the early stages of a recovery. For instance, from 2011 to 2015, the stock price of LVMH more than doubled, outperforming the returns of most other sectors immensely.

A good example of this is Hermes International. An investor who managed to predict that the trend of recovery would begin in 2009 and put €100 in Hermes that year would see their stock reach upwards of €400 by the end of 2015. An investment in luxury goods in this instance is not only a rebound from the severe battering absorbed by these stocks during the recession but is also a testament to the enormous demand for the high-quality and prestigious goods made by these companies.

Even Warren Buffet, who is known not to be a fan of luxury brand investment, recognized that consumer spending will explode during economic upswings. As he says himself, “When people feel wealthy, they prefer to spend on brands that enhance their life’s quality.”

Indeed, between 2010 and 2020, the MSCI World Textiles, Apparel & Luxury Goods Index had some impressive gains. Between January 2010 and December 2020, this luxury index saw a gain of some 250%. By comparison, the MSCI World Index only gained about 100% in the same period. An investor who invested in a company such as LVMH would have seen their shares in the Paris-based entity rise from about €85 in January 2010 to approximately €400 by the end of 2020. This represents an increase of almost 370%. Kering, which owns the Gucci brand, saw its stock price go from approximately €130 in 2010 to over €600 in 2020, an increase of over 360%. All these examples represent the opportunity for some terrific investment gains that some investors have taken advantage of when they invested in luxury goods during the economic recovery period after the recession ended in 2009.


One of the most evident examples of industries that can go through cyclical upswings is the hospitality sector, encompassing hotels, resorts, and other leisure facilities. It is tied in with consumer discretionary spending, which largely relies on their confidence and disposable income levels. The industry had seen substantial gains in the past upon economic recovery as the sector is representative of these fluctuations.

The financial crisis of 2008 led to an extensive decrease in consumer spending, pushing the hospitality sector to the sidelines with most other industries. However, with stabilization of the economy and the subsequent growth, gains in the hotels, leisure, and travel sectors were significant. For instance, the revenue per available room – a key metric for gauging the health of hotels and resorts – started gaining consistently from 2010 onwards. According to data from Statista, global RevPAR was at about $54 in 2009 and nearly doubled by the end of the decade, reaching nearly $83 . This can be translated through a recorded steady compound annual growth rate of nearly 5%.

Some of the most evident examples of such benefits are noticeable at major hospitality stocks. For instance, Marriott International, Inc. saw its stock prices rise from approximately $30 in 2011 to slightly over $155 by 2019. Similarly, Hilton Worldwide Holdings, Inc. stocks saw steady gains from an initial price of about $25 in 2013 during its IPO to over $120 by 2019.

The performance of the sector is usually supported by both international and domestic travel and tourism, which raises in correspondence to the depositors’ psychosomatic security put on by a thriving economy. During such cycles, luxury and boutique hotels and resorts see the most substantial gains in both occupancy and daily rates because the upswings usually start with higher-end consumer spending on travelling and offers. Warren Buffett, a legendary investor, have stressed the advantages of investments into such industries that benefit from economic gains, citing that “Our favorite holding period is forever.


The retail sector is a definitive example of a cyclical industry, characterized by significant fluctuations in performance that align with the overall state of the economy. Due to the fact that the sector’s performance is directly tied to consumer spending, which is driven by economic growth, it is one of the prime candidates for an investment strategy that reflects the cyclical state of an industry. In the past, retail stocks have demonstrated significant levels of elasticity in relation to economic recoveries.

Following the recession of 2008, the retail sector experienced one of the quickest recoveries, fueled by consumer positive sentiment and spending. By 2014, the S&P 500 Retailing Industry Group index grew by 250%, significantly outpacing the broader S&P 500 index . A case in point is the performance of some of the major retailers during that period, with Walmart’s stock price growing from $50 in early 2010 to about $125 by the end of 2020 . Target, showed similar results, with stock price moving from roughly $50 in 2010 to over $160 in 2020 .

The key reason for this behavior is the parallel trends in consumer behavior, with growing disposable incomes during periods of economic growth leading to higher discretionary spending not just on essentials such as food and health products, but also the higher-margin products, which makes the overall sector more profitable.

As Lynch said, “Know what you own and know why you own it.

A case of retail’s performance in the context of the economy is the recovery of the sector following the 2008 financial crisis. As the economy continued its recovery from 2009, the retail stocks were among the industries with the most pronounced rebounds. The S&P 500 Retailing Index Group is a prime example, growing by over 250% from 2009 to 2014. In comparison, the broader S&P 500 index grew by about 150% during that time . For individual giants, the numbers are as follows:

Walmart – from around $50 in 2010 to about $150 in 2020, 200% growth.

Target – from around $50 in 2010 to nearly $180 in 2020, 260% growth.

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