Cyclical stocks are known to perform well under what market condition?

Cyclical stocks, which are shares in companies whose performance is closely tied to the economic cycle, tend to perform well when the overall market is doing well. This alignment occurs because cyclical companies typically benefit from increased consumer spending and investment during economic expansions. During such times, consumers have more disposable income to spend on non-essential items, which boosts the revenues and profits of these companies.

In contrast, these stocks generally struggle during downturns in the economy or in recessionary periods, where consumer confidence and spending tend to decrease. As the market thrives, cyclical stocks usually see a corresponding rise in their stock prices, reflecting investor optimism about sustained growth and profitability. Thus, the correct answer highlights the direct relationship between the performance of cyclical stocks and favorable economic conditions.