What is Sector Rotation?
Sector rotation is the movement of institutional money between different market sectors based on the economic cycle and risk appetite.
The Classic Rotation
| Economic Phase | Leading Sectors | Lagging Sectors |
|---|---|---|
| Early Expansion | Technology, Consumer Discretionary | Utilities, Healthcare |
| Mid Expansion | Industrials, Materials | Consumer Staples |
| Late Expansion | Energy, Financials | Technology |
| Recession | Utilities, Healthcare, Consumer Staples | Cyclicals |
Defensive vs Cyclical
Defensive Sectors (stable in downturns):
- Utilities (XLU)
- Healthcare (XLV)
- Consumer Staples (XLP)
Cyclical Sectors (amplify moves):
- Technology (XLK)
- Consumer Discretionary (XLY)
- Industrials (XLI)
Reading Rotation Signals
In SYZYG, we track sector relative strength:
- Sectors outperforming SPY = Money flowing IN
- Sectors underperforming SPY = Money flowing OUT
Key Takeaways
- Money rotates between sectors in predictable patterns
- Defensive leadership warns of coming volatility
- Cyclical leadership confirms bull market health
- SYZYG tracks rotation as a regime confirmation input