Sector Rotation
The movement of institutional money between sectors of the economy as the business cycle evolves. One sector's outperformance often comes at another's expense.
Sector rotation is the macro-driven reallocation of capital across equity sectors as economic conditions change. Institutional investors actively shift exposure to sectors that are expected to outperform the next phase of the cycle.
The classic playbook: early cycle (recovery) favors Consumer Discretionary and Financials; mid cycle favors Technology and Industrials; late cycle favors Energy and Materials; recession favors Defensives (Consumer Staples, Utilities, Health Care).
Traders track sector rotation via sector ETF flows, relative strength charts (e.g., XLK vs. XLP), and breadth data. When money moves from Growth to Value, or from cyclicals to defensives, it signals a shift in the macro regime.
Related Terms
Beta
A measure of a stock's volatility relative to the market. Beta > 1 means it moves more than the index; Beta < 1 means it moves less.
IntermediateETF
A basket of securities that trades on an exchange like a single stock. ETFs give instant diversified exposure to an index, sector, or theme.
BeginnerLarge Cap
Companies with a market capitalization generally above $10 billion. Large caps are the most liquid, most-analyzed tier of the stock market.
BeginnerMid Cap
Companies with a market capitalization roughly between $2 billion and $10 billion — the "sweet spot" for growth with established business models.
BeginnerRelative Strength (vs Index)
How a stock or sector is performing compared to a benchmark index like the S&P 500. Outperforming the index = positive relative strength.
IntermediateSector
A broad grouping of companies with similar business activities. The S&P 500 uses 11 GICS sectors such as Technology, Financials, and Energy.
BeginnerSmall Cap
Companies with a market capitalization roughly between $300 million and $2 billion. Higher growth potential but also higher risk than large caps.
Intermediate