Option Investor

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Cyclical Rotation

Cyclical rotation occurs as the economy moves through its various phases. As the economy turns up, there are certain groups of stocks known as cyclical stocks, which will rise along with it. Examples of these include housing, paper and automobiles. These stocks tend to be interest rate sensitive and as the economy contracts or turns down, these stocks will generally descend as well. Other stocks, which are not seen as being interest rate sensitive, such as food, drugs and insurance may benefit during an economic downturn. Cyclical stocks tend to be a leading indicator, which can make trying to trade the rotation difficult, as the mere anticipation of an economic shift can send the stock against the investor.