Sector Rotation
Riding economic cycles by repositioning across industries
Definition
Sector rotation is an investment strategy of shifting portfolio assets from one industry sector to another to take advantage of different stages of the economic cycle. Cyclical sectors (technology, consumer discretionary) outperform during expansion; defensive sectors (utilities, healthcare, consumer staples) outperform during contraction. Active traders use sector rotation signals to position ahead of macro shifts.
Example
As the Federal Reserve began raising rates in 2022, institutional investors rotated out of high-growth tech stocks and into energy and financials — sectors that benefit from rising rates and commodity prices. The XLE energy ETF gained 60% while the QQQ Nasdaq ETF fell 30%.
Related Terms
Frequently Asked Question
What is sector rotation?
Sector rotation is moving capital between industry sectors based on economic cycle positioning. Different sectors outperform at different stages of expansion and contraction.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.