Sector Rotations Happen in Shocks, Not Gradual Shifts—and Models Miss It

In 2001, tech stocks fell nearly 50% while non-tech S&P 500 names gained 7.7%—a 60-point spread in months, not years. Early 2021 saw energy return 67.2% and financials 42.9% in six months as yields steepened. These episodes reveal a pattern: rotations cluster into compressed windows driven by macro catalysts, not slow drift. Risk models built on trailing correlations systematically underestimate how fast correlations break.