Sector Rotation: Revenge of the Fallen

Sector Rotation: Revenge of the Fallen

Summary

The labor market has undergone significant changes in recent years, driven by the COVID-19 pandemic and its aftermath. One key indicator of the labor market's health is the Beveridge Curve, which plots the relationship between the US unemployment rate and the job openings rate. However, the Beveridge Curve may have experienced a permanent shift as a result of the pandemic, with implications for sector rotation in equities. The Beveridge Curve has traditionally been a reliable predictor of economic activity, with a inverse relationship between unemployment and job openings. However, since the pandemic, the curve has flattened, suggesting a mismatch between the supply and demand for labor. This shift has significant implications for sector rotation, as certain industries may be more affected by changes in the labor market than others.

Key Points

The Beveridge Curve may have experienced a permanent shift as a result of the COVID-19 pandemic, with implications for sector rotation in equities.
• Curve relates US unemployment rate to the rate of job openings.
• Curve typically shows inverse proportional job openings rate to unemployment rate.
• Job opening rate is proxy for labor demand.
• Curve indicates health of the labor market at a point in time.

Example: A low unemployment rate and high vacancy level indicate a tight labor market.