To The Moon

$iShares Russell 2000 ETF(IWM)$

Sector rotation is an active investing strategy that involves moving money between sectors in an effort to keep it in the best-performing sectors at all times. It often uses exchange-traded funds (ETFs) that track specific sectors — such as tech ETFs or energy ETFs.

It is the movement of money from one sector of the economy to another to capitalize on economic trends. Investors rotate sectors based on factors such as interest rates, economic indicators, and industry performance.

Keep this in mind

A sector rotation strategy that uses ETFs provides investors with an optimal way to enhance the performance of their portfolio and increase diversification. Just be sure to assess the risks in each ETF and strategy before committing your money.

The way to determine when a sector rotation is evidenced in a basic form by comparing the long and short-term performance of sensitive, cyclical, and defensive companies. Sensitive and cyclical stocks, more reactive to interest rates and other economic factors, have taken advantage of favorable conditions for most of the last decade.

Time to hop or stay?

Sector rotation is a long-term strategy, normally only reviewed one each month, so that many of the small moves that would cause a trader to jump in and out of the market are smoothed over. It looks at the performance of each sector over the past 3 to 12 months, ranks them, and chooses the best three.

One way to take advantage of such rotation is to zoom into the big brothers of that particular sector. Within each sector, identify the stocks that have the greatest price appreciation using multiple timeframes to be sure that the stock is performing well over time. The stocks that have performed the best over two or three timeframes are the stocks we want.

Bigger the box, stronger the stock

Economic indicators like GDP, interest rates, and unemployment rates provide insight into the state of the economy. These indicators can help predict the sectors likely to thrive or falter.

Investing in a sector ETF allows you to gain exposure to a broad range of companies within this sector, rather than holding a single stock. This can reduce the risk that might be associated with holding a single specific stock.

Alternatively, just trade the evergreen SPY and the up and coming IWM as both represents the top 500 big-cap and 2000 small-cap companies respectively in the US. Small caps have had a historic run once it became clear inflation was last year's problem and rate cuts are coming soon.

13% growth in a month

Since the last two speeches by the Fed chair, money has been channeling out of QQQ and other sectors that stayed stagnant since the market is pending a rate cut as early as September. IWM could be the beneficiary of such a move, something worth considering in the weeks ahead.

That doesn't mean QQQ is dead since the big tech companies influence more than half the US economy especially AI could be the buzzword for many moons to come. Just keep a close watch to diversify into higher growth sector to make your money work harder for this by riding on the sector rotation 😉

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