Sector Rotation Signals: Where Capital Is Flowing Now

Sector rotation is the lifeblood of equity markets. Capital doesn't sit still — it flows from overvalued sectors to undervalued ones, from risk-on to risk-off and back again, following a cycle that has repeated with remarkable consistency for decades. Understanding where capital is flowing today gives you a significant edge in positioning for tomorrow's moves.

The classic sector rotation model follows the business cycle: early expansion favors financials and technology, mid-cycle benefits industrials and materials, late cycle shifts to energy and healthcare, and recession drives capital into utilities and consumer staples. While this model is useful as a framework, the modern market is more nuanced — sector rotation now happens faster and is driven by multiple factors beyond the business cycle.

Our sector rotation framework tracks three proprietary signals. First, relative strength momentum: we calculate the 20-day rate of change for each of the 11 GICS sectors relative to the S&P 500 and rank them. Sectors moving from the bottom quartile to the top quartile over a 4-week period are the strongest rotation signals. Currently, healthcare and industrials are showing this positive inflection.