Just as your diet changes with the seasons, your investment portfolio needs periodic rebalancing to adapt to changing economic conditions.
Sector rotation involves moving investments from one sector to another to optimize returns based on economic cycles.
Savvy investors anticipate economic phases and shift their funds to sectors expected to perform well in those phases.
Stock market cycles typically precede economic cycles as investors look ahead.
Sector rotation often involves moving between cyclical (economically sensitive) and non-cyclical (defensive) stocks.
Offensive stocks, tied to economic growth, include industries like automobiles and luxury goods.
Defensive stocks, such as utilities and healthcare, remain stable during economic ups and downs.
Popular sector rotation strategies involve moving from defensive to offensive stocks in times of economic growth and vice versa during slowdowns.
In Q2 2023, sectors like communication services, healthcare, utilities, and consumer staples are favored due to high inflation and an impending recession.