Which characteristic most accurately describes cyclical stocks?

Cyclical stocks are defined by their sensitivity to economic cycles; they typically perform well during periods of economic growth. This is because these stocks are associated with companies whose businesses thrive when consumer spending and overall economic activity are high. For instance, sectors like automotive, construction, and luxury goods significantly benefit from an expanding economy, leading to increased sales and profits.

When the economy experiences growth, consumers and businesses tend to spend more, which boosts the revenues of cyclical companies, allowing them to flourish in a favorable economic environment. This relationship underscores why cyclical stocks are often regarded as a way to capitalize on the upswings in economic activity.

In contrast, the other characteristics do not accurately reflect cyclical stocks; they may not always perform poorly during economic growth, can exhibit varying levels of volatility depending on the specific market conditions, and are not necessarily known for providing consistent dividends, as many may reinvest profits back into the business rather than distributing them to shareholders.