Sector rotation is the lifeblood of a bull market.
In healthy market environments, certain groups of stocks and sectors consistently lead the way — and it’s usually the risk-on areas like Technology and High Beta that sit at the top of that list.
At the same time, some groups tend to lag behind. Defensive areas such as Consumer Staples and Low Volatility stocks in general typically underperform when markets are strong. That’s normal — it’s exactly what you want to see in a healthy bull market.
If you’re newer to this, beta simply measures a stock’s volatility relative to the overall market.
- A stock with a beta of 2 — like Tesla (TSLA) — tends to move twice as much as the S&P 500.
- A stock with a beta of 0.5 — like Altria (MO) — tends to move about half as much.
In other words, High Beta names swing harder, and in bull markets, they usually swing higher.
All-Time High for High Beta / Low Volatility
Here’s a look at the S&P 500, which closed at a new all-time high yesterday, overlaid with the ratio of the S&P 500 High Beta Index versus the S&P 500 Low Volatility Index.
When the S&P is hitting new highs but this ratio isn’t, that’s often an early warning sign — a signal that leadership is shifting toward defense and that momentum could be fading.
That’s not what’s happening right now.
Yesterday, both the S&P 500 and the High Beta vs. Low Volatility ratio closed at new all-time highs:
This is what healthy rotation looks like.
When offense is leading — High Beta, Tech, Discretionary — that’s exactly what you want to see during a bull market.
Right now, the offense is on the field. So we’re still running offensive plays.
What’s Inside?
When you dig into the makeup of these indexes, the leadership becomes obvious. Nearly 45% of the S&P 500 High Beta Index is made up of Technology stocks.
And that’s no accident. If you go back and study every major bull market over the past century, Technology has been a consistent leader and one of the top-performing sectors in nearly all of them.
Right now is no different. Technology just closed at new all-time highs, the Semiconductor Index followed suit, and Nvidia (NVDA) is approaching $5 trillion in market cap for the first time.
On the flip side, the Low Volatility Index looks very different — about 15% Consumer Staples compared to 0% in High Beta. That’s not where leadership lives during bull markets.
The biggest risk in a bull market isn’t a pullback. It’s not being invested.
Too many investors have chosen to sit this one out — distracted by headlines about trade wars, the economy, or politics. Whatever the reason, the result is the same: they’ve missed the move.
If you’re not bullish during a bull market, what are you even doing?
So when we talk about “risk,” this is what we mean. The risk has been not being long enough — and many investors have learned that the hard way.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs