Equities
Sector Rotation
Sector rotation describes how money flows between the major stock-market sectors as the economic cycle turns. Different sectors thrive in different conditions, so capital shifts to wherever the environment looks most favorable.
Early in a recovery, cyclical sectors such as consumer discretionary and industrials tend to lead. As the cycle matures and slows, defensive sectors like utilities, health care, and consumer staples often take over.
For a follow-the-money investor, spotting rotation early is a key edge. It offers a way to align a portfolio with where growth and liquidity are headed rather than where they have already been.
Example
Late in an expansion, investors often rotate out of cyclical sectors like consumer discretionary and into defensive sectors like utilities and consumer staples.
Sector Rotation — FAQ
What is Sector Rotation?
Sector rotation is the movement of investment capital from one industry sector to another as investors position for the next phase of the economic cycle.
Can you give an example of Sector Rotation?
Late in an expansion, investors often rotate out of cyclical sectors like consumer discretionary and into defensive sectors like utilities and consumer staples.
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