What is Sector Rotation?
How Does Sector Rotation Work?
The basic idea behind sector rotation is that the economy operates in cycles. At various points in the cycle, certain business sectors will perform better than others. For example, consumer discretionary stocks are most attractive during the early stages of an economic recovery when consumer demand begins to build.
A sector rotation strategy divides the economy into various sectors, as shown in the diagram below. Sector rotation also assumes four stages in the business cycle: early recovery, recovery, early recession and recession. Various sectors become more or less attractive at different stages in the cycle.
Source: Business Week
Why Does Sector Rotation Matter?
However, investors should recognize that sector rotation is a general theory based on past stock market performance and that there is no that any particular stock will follow these patterns in the future.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
This week, a client wanted me to tell him which dividend stock is the best to buy. He said his retired neighbor receives a large...Read More →
A sharp plunge on Monday, a stunning rebound Tuesday, another pullback Wednesday. When will it all end? It's increasingly clear that very low...Read More →