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What Is a Sector Rotation?

Nate has been predicting a sector rotation and we have seen that begin to play out.
 
   
     
What Is a Sector Rotation?
 
 
Hey all, Phoenix here!

I wanted to take a step back today and discuss what a sector rotation is and why it's important to understand what it looks like. 

In some of his recent writings over the past few weeks, Nate has been predicting a potential sector rotation. And between last week and this week, we have seen that begin to play out as money has moved out of high-growth tech and communication services and into sectors that have been largely forgotten much of this year. 

So Needless to say, Nate was right and the sector rotation is indeed underway. 

Now, we don't know how big or small the sector rotation will be or how long it will last. But we have already seen capital flowing extensively out of high-growth tech and communication services into things like Energy, Utilities, Real Estate, Financials, Health Care, Industrials, and Materials.

What is a sector rotation? 

In theory, a sector rotation occurs when money moves from one area of the stock market to another. 

An example of this would be money moving out of the tech sector and into healthcare. 

In practice, we typically see several sectors grouped together that will all rise together at the same time and then fall together at the same time as capital flows in and out.

For example:
• We typically see Communication Services and Technology move together.
• We also often see Energy, Utilities, Materials, and Industrials move together.
• We also frequently see Real Estate and Financials move together.
• And finally, we frequently see Consumer Discretionary, Consumer Staples, and Healthcare moving together.

Why should we understand sector rotations? 

Think about it this way: You want your money to be invested in areas of the stock market that are going to go up, right?

If money is being pulled out of Tech and Communication Services as we've seen the past week, then you'd want your money parked where capital inflows are going.

So, in the past week, you would have wanted to be invested in energy and financials instead of tech and communications. 

Take a look: 
 
 

You can see from this chart that we would have wanted to rotate our funds into the sectors that saw the gains, especially into energy and financials. 

That's why it's so important to understand what sectors of the stock market are seeing inflows and what sectors are seeing outflows. As investors, we need to gain the skills to strategically determine where to place our funds.

And frankly, Nate does a great job of this — and a great job of teaching his students how to look out for this.

During my time working with him, I have seen him strategically predict what sectors would be on the rise and what sectors would be on the decline and make some fantastic trades based on these predictions.

Let’s build wealth together!

— Phoenix van Zutphen 

P.S. If you’d like to learn more about how to take advantage of the shifting market we find ourselves in, then I’d highly encourage you to check out Nate’s Jump Trades service right here.
   
 
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