Every economic cycle is the same: growth, slowdown, decline, growth, slowdown, decline, etc. However, each cycle is also different, with its own set of nuances and areas of possible investment. For example, in the current downturn, there's a raging debate over just where economically sensitive commodity prices are heading -- the resolution of which either makes stocks like heavy equipment maker Caterpillar (NYSE: CAT) , oil services provider Baker Hughes (NASDAQ: BKR) , and copper miner Freeport-McMoRa n (NYSE: FCX) raging buys or stocks to avoid. Here's the lowdown.
It boils down to supply and demand considerations. In typical cycles, high prices induce investment in supply expansion (in this case in oil and industrial metals like copper), which leads to overcapacity when end demand starts to wane with slowing economic growth. That's why specific commodity prices tend to be highly volatile and cyclical. One year, demand is soaring, prices are soaring, and the industry is struggling to keep up; the following year, even a slight drop in demand produces a steep fall.
An example of this cyclicality comes from the price of oil dropping to around $19 a barrel at the height of the lockdowns in the spring of 2020 and rising to over $100 a barrel in 2022.
For further details see:
3 Stocks Bulls and Bears Can't Stop Fighting Over