Sector Rotation
The tendency for different sectors to lead at different points in the economic cycle, and strategies that attempt to follow it.
How it is identified
Test: relative performance shifts systematically between cyclical, defensive and rate-sensitive sectors as conditions change
Unit
qualitative
In depth
The pattern described is that cyclicals such as metals and autos tend to lead early in an expansion, financials benefit as credit growth picks up, and defensives such as staples and pharmaceuticals hold up best in downturns. The tendency is real in historical data and unreliable enough as a timing tool that acting on it requires being right about the cycle's turning points, which is the hard part. Rotation strategies also incur substantial transaction costs and taxes. This entry describes an observed pattern and does not suggest that any sector will outperform.
Worked example
Capacity utilisation rising past 78% has historically coincided with capital goods outperforming staples. Identifying that in real time, before the data confirming it is published two months later, is the unsolved part.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Sector Rotation” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.