Here is another one of our favorite charts, courtesy of Jim Stack and Investech Research. It shows how leadership shifts over three stages of a Bull run:>

Stages of Sector Rotation

Stage I:   The transition from bear market to bull. Cyclical sectors — Financials, Technology and Consumer Discretionary — outperform.

Stage II:  Mid-to-late bull market.  Materials and Industrials outperform, as do  Energy and Telecom stocks;

Stage III:  Nondiscretionary sectors — Health Care, Consumer Staples and Utilities — Recession proof products and services — are the most resilient as the bull begins to die.


Three Stages of Sector Rotation

Chart courtesy of Investech Research

Category: Markets

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13 Responses to “Sector Rotation and the Stock Market Cycle”

  1. GreatWarrior says:

    Great Idea, nice generic chart.

    So Barry, where are we now in the cycle? Stage III and at the begginning, or end? or mid-Stage II?


  2. MorticiaA says:

    Here’s another version of a sector rotation chart that I refer to quite often.

  3. Bill Wilson says:

    Is the shaded area supposed to be where we are now? Rotation away from Goldman and Apple, towards energy and materials. Does the FED normally hav its foot on the gas at this stage in the cycle?

  4. James says:

    Any dates that can be attached to that chart? :)

  5. realgm says:

    We are getting closer to the peak, the last run would be in Energy and Telecom.

    Aside from VZ, what else would you recommend?

    There hasn’t been any meaningful correction since August, do you think there would actually be a meaningful correction before the market peak?

  6. RW says:

    I used to give sector rotation fairly heavy weight in the value segment of my portfolio but results became increasingly less reliable through the naughties and it has considerably less weight in that segment now. Tracing this back (rather roughly) the sector rotation/business cycle pattern seemed to break up sometime around the ‘stealth bear’ of 1998 (the nasdaq and s&p continued to melt upward for another two years while everything else pretty much rolled over).

    Greenspan Fed policies probably had something to do with this but I believe so also did the rise of the FIRE sectors — finance, insurance, real estate — and their increasing dominance in both the s&p and in Washington DC.

  7. Brett Tibbitts says:

    Jim Stack is great – in fact am a subscriber. But I am not sure this chart tells enough. I don’t think it would be wise to be investing in utilities after a market top if the reason for the market top was higher, especially much higher, interest rates.

  8. seriously, are there ‘Sectors’ that are, now, “out of favor” ?

    (seems like, now, most everything is rather ‘dear’ ..)

  9. gordo365 says:

    Here’s my favorite rotation plan.

    - When stocks are down wait.
    - When stocks are really going up, and have been for a while – buy issues that have gone up more than the market. Lean towards stocks friends are talking about at cocktail parties.
    - Hold the stocks as market turns (usually don’t have to wait too long) without stop losses in place.
    - Really grind teeth at night and mutter under breath while doing chores as stock looses 20, 30 40%.
    - Start watching Cramer etc. to boost hope that stock will come back.
    - Loose hope when stock hits 50% loss and sell in fit of disgust.
    - Repeat.

    If you have means – you can hire a financial planner to help you complete these steps with more trades and more money than you are really comfortable with, magnifying losses.

    Did I miss anything? :)

  10. WFTA says:

    Damn it, Gordo. My publisher is going to be furious.

  11. JimRino says:

    Thanks for posting this kind of information BR.

  12. drewburn says:

    OH I CAN’T RESIST: Cyclical sectors — Financials, Technology and Consumer Discretionary outperform. SINCE WHEN were these sectors considered cyclical!!!! LOL. And Materials and Industrials were just……….??? Come on. In the “old days” materials and industrials were the heart of cyclical!!!!! Now, they’re just, what, mid-cycle plays.

    This fails to consider, fails historically…….the materials and industrials are VERY cyclical. Just once in a generation they have a real live, full cycle bull market boom……..and everything else is a trade…….

    Positions: Over-invested in mid-cycle plays, and have been for 10 years.

  13. DMR says:


    When the economy is growing, banks make more loans, businesses use those loans to invest in technology and hire more workers, who splurge their paychecks at the mall. When the economy stops growing, banks tighten their standards, causing businesses to postpone technology purchases and lay off a few folks for good measure, causing consumers to think hard before heading to the mall.

    Do you have a different definition of cyclical?