Sector Rotation

Sector rotation is the strategy of shifting portfolio weight between different market sectors (technology, energy, financials, healthcare, and so on) based on where each sector sits in the economic cycle. Cyclical sectors tend to lead coming out of a recession, while defensive sectors tend to hold up better heading into one.

The strategy sounds straightforward but is difficult to execute well in practice, since it requires correctly timing both the economic cycle and the market's often-early pricing of that cycle, two forecasts that are each individually hard to get right.