What is Sector Rotation?
Shifting investments between sectors based on the economic cycle.
Formal Definition
Sector rotation reallocates capital across market sectors as the economic cycle turns. Cyclicals such as consumer discretionary and industrials tend to lead in expansions, while defensives such as utilities, staples, and health care hold up better in slowdowns. Rotation strategies aim to position ahead of these shifts.
In Simple Terms
It is moving your money into whichever parts of the economy are likely to do well next, based on where we are in the boom-and-bust cycle. In good times you favor growth sectors; in scary times you favor safe, steady ones.
Example
Moving from technology to utilities as recession risk rises is a defensive rotation.