Are Penny Stocks Cyclical?

Penny stocks like other investments exhibit certain cyclical behavior.

These behaviors are dependent on the following factors

 

Economic cycles : An economic cycle is the economic fluctuations between periods of expansion and contraction. It is also known as the business cycle and majorly affected by the interest rates, total employment, gross domestic product (GDP), and consumer spending. Economic cycles is the state of the economy as it stirs through the four phases in the cyclical pattern which are the expansion phase, peak phase, contraction phase, and trough phase. A good knowledge of economic cycles can guide investors in ascertaining the right time to put in and pull out funds considering that stocks, earnings, bonds, profits, mutual funds and ETF are directly affected by these cycles.

 

 

Industry - Specific cycles: The introduction phase, growth phase, maturity phase and decline phase are the four distinct phases of an Industry life cycle. Product development is the foundation of an Industry creation with other relevant factors including product specifications, competitors and market size. A culmination of the decline phase can be the end of an industry due to its incapacity to maintain growth. An understanding of what phase in the industry- specific cycle a company is at would strongly determine the investment approach an investor should follow.

 

 

​