RiskPicksWhat is Sector Rotation?
Sector rotation is the movement of investment capital from one industry sector to another. It's driven by changes in the economic cycle, interest rates, and investor sentiment.
The economic cycle
- Early recovery: financials, consumer discretionary, industrials lead
- Mid cycle: technology, industrials continue
- Late cycle: energy, materials, healthcare outperform
- Recession: utilities, consumer staples, healthcare (defensive sectors)
Why it matters for traders
Understanding which sectors are in favor helps you pick stocks with tailwinds rather than headwinds. If tech is rotating out, even the best tech stock will struggle against the sector flow.