Sector Rotation

The Classic Cycle Map

The traditional sector-rotation map ties sector leadership to the business cycle. Early-cycle recoveries tend to favor financials (steepening yield curves, credit expanding) and consumer discretionary (spending resuming after a slowdown). Mid-cycle leadership broadens into industrials and technology as growth becomes self-sustaining. Late-cycle markets rotate toward energy and materials, as inflation pressure builds, and defensively toward staples, utilities and healthcare as growth decelerates. No single sector leads through an entire cycle — that handoff, and its timing, is what the rotation discipline is trying to read.

The Modern Intra-Tech Version

The AI buildout has produced a narrower, faster version of the same logic inside technology itself, rather than only across the broad economy. Capital rotates between semiconductors — the picks-and-shovels of installation — and software — the applications layer that monetizes the installed base once it exists. When infrastructure spending and capacity announcements dominate the narrative, semis tend to lead; when the debate shifts to who captures value from actually using the compute, software leadership tends to reassert. This intra-tech rotation is small enough in scope and fast enough in pace that Closelook tracks it daily rather than by calendar quarter.

Reading Rotation in Real Time

Rotation is visible before it is obvious, in relative performance between sector baskets rather than in absolute price moves — a sector can rotate out of favor while still posting a positive return, simply by lagging its peers. Dispersion between sector returns is the raw signal; sector relative strength turns that dispersion into a ranked read; and because rotation is a symptom of a changing market regime, the same breadth tools used to confirm a trend are also the tools used to confirm which sector is actually taking the baton.