Sector rotation happens when investors shift money from one group of industries to another. The goal is to be positioned where growth or stability is expected next.
For example, capital may move from growth-oriented sectors into defensive ones when uncertainty rises, and back again when confidence returns. The economy changes pace, and markets adjust exposure accordingly.
Sector rotation explains why some industries outperform while others lag, even when the overall market barely moves.
Understanding rotation helps investors avoid chasing past winners and better manage risk. It also provides context for why portfolios behave differently across market cycles.
Sector rotation is often identified through:
- Relative performance shifts between sectors
- Changes in market sentiment and macro expectations
- Capital flows moving into defensive or cyclical areas
- Leadership changes during different cycle phases
Trends matter more than single data points.
A common mistake is reacting too late. By the time rotation is obvious, much of the move may already be priced in.
Another error is assuming rotation is precise or predictable. Sector shifts are gradual and often overlap, increasing risk for short-term timing attempts.
On Stoxcraft, sector rotation is discussed in market analysis and News content explaining shifts in leadership across industries.
It’s also covered in Academy content linking market cycles, risk-on, and risk-off phases to changes in sector performance. In addition, the Portfolio Builder includes a sector breakdown that helps visualize exposure and manage rotation across different market environments.
