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Sector
Sector Rotation Model Suggests There's Still Upside Available
Julius de Kempenaer | December 09, 2021 at 11:04 AM
r RRG ChartsRotation Model Suggests There's Still Upside Available
Julius de Kempenaer | December 09, 2021 at 11:04 AM
In this week's episode of Sector Spotlight, I reviewed the current position of markets (sector rotation) in
combination with the theoretical framework provided by the Sector Rotation Model (Sam Stovall). This article
provides a quick write-up of that segment.
The sector rotation model shows the typical cyclical movement of an economy. We start when the economy is in a
(full) recession, before moving into an early recovery phase and eventually reaching a full recovery, after which the
new cycle starts with an early recession.
It is generally known that the stock market leads the economic cycle by 6-12 months on average. In the image above,
the blue sine wave represents the economy and the orange sine wave represents the stock market. Across the top of
the image are the sectors that are expected to do well during that time of the cycle.
Clearly, it is a very rough guide, with no specific start and end dates available for the various periods/segments. (I
wish ;) ). The table below the graph is a crucial part of the sector rotation model, as it lists four macroeconomic factors
that influence the economic cycle.