Sector rotation

That confidence is built on their inflation forecast and labor data, not wishful thinking.

Now let's map this to sector rotation.

Energy and financials have been beneficiaries of the hot inflation narrative.

Higher yields support bank net interest margins, and energy names ride the oil spike.

Now let's connect the dots to equities.

Rising bond yields create a sector rotation environment that's playing out in real time.

Financial stocks are the primary beneficiaries.

Higher rates improve lending margins for banks.

Elevated discount rates reduce the present value of future earnings, and that hits growth stocks hardest.

If you're holding names with valuations stretched on far-out cash flows, you're feeling the pain right now.

The sector rotation is not subtle.

Financials are showing upward momentum while tech names are seeing selling pressure.

think overall investor sentiment is a bit cautious right now.

Now, it seems, Jeff, like we're almost seeing a sector rotation almost on a daily basis, depending on what the headline news is.

But, you know, if you look at financials, communication services, consumer discretionary, it seems like those are the sectors right now where some of that tech money, some of the money maybe from a little bit of the AI trade has really flowed into.

investors are going to remain a bit cautious in the near term.

Right.

And for those who are perhaps looking to use the expected dip as a buying opportunity here into year end, I'm just wondering what you've made of the sector rotation that we've seen.

Yeah, well, like I said, I think what's been interesting is the interest rate sensitive sectors have really kind of fallen off the cliff a little bit.

But, you know, if you believe that rates are going to start stabilizing along these levels, maybe we get a hike in September.

So what does that mean for most investors? It means you...

Again, the sector rotation is alive and well right now.

And you might just have to take a little bit of a step back, wait for some of the dust to settle to see where some of the strength is going to be.

Magnificent 7 on Friday was kind of a standout.

That's that's been tough lately.

And so maybe this is a market that's more about the pullbacks where you are getting, you know, Some maybe bounces off of moving average lines, upside reversals, the like.

And it just might be a time where you have to take your profits a little bit quicker because they don't seem to be lasting very long before that sector rotation comes and gets you again.

Exactly.

Now, the market buzz.

Sector rotation.

Digging into where the rotation has been this year from an industry perspective, semiconductors and oil and gas exploration and production lead year to date.

But the story looks much different over the past one in three months.

Software, nuclear energy and biotech have also done quite well.

On the flip side, solar energy has plummeted 29% and clean energy has dropped 27% over the past three months.

We view ongoing sector rotation as a normal aspect of a healthy bull market, leading to broadening participation rather than concentrated leadership that tends to make an advance more fragile.

Today's market review.

Sorry, Tokyo.

But which economic sector and industry do you view as overlooked, undervalued, and represents a strong opportunity for long-term capital gains? Which sector industry is most overvalued? So sector rotation more or less.

Yeah.

And what sectors are you comparing each other against?

They've been really beaten up here as of late.

And again, th- this is, you know, short-term opportunity.

If you look at kind of the sector ro- our sector rotation work, et cetera, uh, utilities, real estate, because of interest rates, have gotten decently beaten up.

Home builders is a good example, has been pretty beaten up because of what's going on in the housing market.

Both the Bank of Canada and the Fed remain on hold into September, with roughly 60% odds of a 25 basis point cut by year end.

Earnings season is largely behind us, so sector rotation and macro data now drive price action.

About 14 days ago, we picked AAPL on a product redesign catalyst that ultimately closed down 0.81%, and the lesson was that volume confirmation must precede any catalyst entry when sector rotation is active.

Portfolio allocation to gold and Bitcoin can serve as a risk reduction overlay when bond yields are artificially suppressed by policy.

Ray Dalio's framework treats 10-15% gold, plus a smaller Bitcoin sleeve, as a hedge that historically lowers overall volatility while lifting long-term returns, especially when fiscal deficits keep pushing real yields higher.

Gap fill risk remains if broader precious metals rotation stalls, so the stop sits at the session low for a maximum 4% loss on the position.

The target is plus 3% to plus 6% on continued momentum into the next session.

Confidence is medium because the earnings catalyst is confirmed and volume is supportive, yet sector rotation into precious metals remains unconfirmed by broader market breadth.

Katie's the founder of Fairlead Strategies.

She is a successful technical analyst who also runs a number of ETFs, including the Fairlead Tactical Sector ETF, which is a tactical sector rotation model, but also the newly launched amplify Fairlead tactical Bitcoin ETF.

So we'll talk about crypto.

We'll talk about sectors.

And I'm curious because you mentioned the dominance of technology in the benchmarks, right? So sort of tech on its own is probably 40%.

And if you add the other kind of tech-like things in communications, that was about half of the benchmark is just that sort of thing.

So when you're thinking tactically about sector rotation ETFs, How does that severe overweight in those growth sectors affect positioning or affect risk management when you're just trying to, you know, trying to sort of bet around that big elephant in the sector room, I guess?

Right.