Sector rotators believe in large part that the stock market reflects
economic and political trends.
They use "macro" or "big picture" analysis to establish
the economic and political outlook for the markets. For example, they would
focus on financial sector stocks coming out of a recession, hoping that monetary
policy loosening and falling inflation would lead to lower interest rates which
in turn would benefit financial stocks. Later in the cycle they would focus on
cyclical and commodity stocks, expecting increasing economic activity would lead
to higher prices for commodity stocks. They trade actively, moving into "out-of-favour"
industries and sectors. They might own all the stocks in an industry, expecting
them all to do well with an increase in their commodity price. |