What type of stock is considered risky due to fluctuating market conditions?

Cyclical stocks are considered risky because their performance is heavily tied to the fluctuations of the economy. These stocks belong to companies whose earnings and overall success are correlated with economic cycles; they typically perform well during periods of economic expansion when consumers have more disposable income and tend to purchase more goods and services. Conversely, during economic downturns, these stocks can experience significant declines as consumer spending decreases. As a result, investors often view cyclical stocks as more volatile and risky, facing higher levels of uncertainty based on changing market conditions.

In contrast, blue-chip stocks, which represent well-established companies with a history of reliable earnings and dividends, tend to be more stable and are considered a safer investment. Value stocks are those that appear to be undervalued in the market and are sought after primarily for their potential growth rather than high risk. Income stocks are typically stable and known for paying high dividends, providing a steady return to investors regardless of market fluctuations.