S&P500 Sector Rotation Sentiment Indicator
The S&P500 Sector Rotation Sentiment Indicator is an advanced quantitative tool that analyzes sector rotation in S&P500 to identify investor sentiment and macro expectations. By examining the relative performance of 11 major sectors, the indicator measures four key dimensions: economic cycle (expansion vs contraction), interest rate expectations, inflation pressures, and risk appetite (risk-on vs risk-off).
The system employs composite ranking algorithms and relative strength analysis to generate quantitative scores (-1 to +1) that translate market movements into clear interpretive signals. Features an automated alert system to identify regime changes, extreme readings, and high-velocity movements.
Active Alerts (1)
For subscribers only
Sentiment Indicators
Economic Cycle
Interest Rate Expectations
Inflation Expectations
Risk Appetite
How It Works
The indicator is based on the principle that institutional investors rotate capital between sectors according to their economic expectations. When optimistic about growth, they favor cyclical sectors (Technology, Financials, Industrials); during contraction or uncertainty, they shift toward defensive sectors (Healthcare, Utilities, Consumer Staples).
Calculation methodology:
- Data collection: Daily performance of sector ETFs across multiple timeframes (5, 20, 60 days)
- Relative strength: Calculation of sector/benchmark ratio and its trend
- Composite ranking: Weighted aggregation of performances to create a unified ranking
- Sentiment score: Each sector has predefined characteristics (cyclical/defensive, rate/inflation sensitivity, risk profile). The system calculates the weighted average of top-ranked sectors’ characteristics
3-tier alert system:
- CRITICAL: Extreme situations (flight to safety, readings >±0.6)
- HIGH: Significant regime change (delta >0.4 in 20 days)
- MEDIUM: High rotation velocity
How to Interpret
Scores from -1 to +1 for each dimension:
Economic Cycle:
- >+0.3: Expected expansion → Overweight cyclicals
- <-0.3: Expected contraction → Overweight defensives
Interest Rates:
- >+0.3: Rate hike expectations → Financials favored
- <-0.3: Rate cut expectations → Rate-sensitive penalized (Real Estate, Utilities)
Inflation:
- >+0.3: Inflationary pressures → Energy, Materials favored
- <-0.3: Disinflation → Inflation hedges penalized
Risk Appetite:
- >+0.3: Risk-ON → Momentum in growth stocks
- <-0.3: Risk-OFF → Flight to quality
Practical use: Combine the indicator with technical and fundamental analysis to confirm turning points. CRITICAL alerts require immediate attention and potential portfolio rebalancing.
