How do interest rates and inflation reshuffle which sectors lead?

Your Macro course taught that rates act like gravity on all asset prices. But gravity doesn't pull every sector equally — and that uneven pull is a big reason leadership rotates. This lesson connects the macro weather directly to the sector map.

Rates pull unevenly

Two ways interest rates land harder on some sectors than others:

• Rate-sensitive by valuation. A sector whose value rests on profits far in the future (fast-growing tech) is hit hardest when rates rise, because those distant profits get discounted more heavily — straight from your intrinsic-value course. High rates = heavier discount = the future-heavy sectors feel it most.
• Rate-sensitive by business. Some sectors are mechanically wired to rates. Banks can earn more as rates rise (a wider lending spread), so they're an unusual sector that rising rates can help. Utilities and Real Estate, prized for steady dividends and carrying heavy debt, tend to suffer as rates rise — their income looks less special next to now-higher bond yields, and their borrowing costs climb.

So a single rate move can help banks, hurt utilities, and squeeze richly-valued tech all at once — three different reactions to one number. That's rotation being caused, in real time.

Inflation sorts sectors too

Rising inflation reshuffles the deck on its own axis:

• Winners tend to be sectors whose product is the rising price, or who can pass costs straight through: Energy, Materials, and companies with strong pricing power (a moat helps here — pricing power is partly inflation armour).
• Losers tend to be sectors that can't raise prices fast enough to cover rising costs, squeezing their margins from both ends.

Putting the weather and the map together

This is the synthesis the course has been building toward. The macro environment (rates, inflation, growth) doesn't move "the market" as one blob — it moves sectors differently, and the pattern of who's helped and who's hurt is the rotation. Read a rate decision through the sector map and you can reason about which parts of the market feel a tailwind and which feel a headwind — as understanding, never as a forecast.

A worked example

Rates rise sharply over a year. Watch three sectors diverge: a bank may see its lending margin widen and its earnings improve; a utility, loaded with debt and prized for its dividend, sees its shares pressured as bond yields now rival its payout; a high-growth software name sees its valuation compress because its far-off profits are discounted harder. One macro move, three honest directions — and if you'd treated "the market" as a single thing, you'd have missed all three stories.

In the data

"Rates" is not one number. The Treasury publishes a yield for fourteen maturities every day, from one month to thirty years; here are the two ends and the 10-year on the latest day:

Which maturity you watch is a decision, not a detail. Short and long yields can move in opposite directions over the same stretch, so "the year rates rose" is a different window depending on the maturity you picked. The chart below uses the 10-year, the one most equity valuations lean on.

Try it now

Start with the gravity itself. This is a yield series, not a price — a value of 4.674 means 4.674%:

1. Find the stretch on that chart where the yield rose most sharply, and write down the two dates that bound it. That window is your natural experiment.
2. The sharpest climb in that five-year window came in 2022, when the 10-year yield went from about 1.5% at the end of 2021 to about 4.2% by late October 2022. Check that your two dates bound roughly that stretch. Here is what a bank, a utility and a fast-growing software company did over it, first and last weekly bar:

Compute each one's percentage change from the first adjusted close to the last. If your own window was a different stretch, open the same three in the Terminal and read them over your dates instead: Open JPM.US in the EODHD Terminal, Open DUK.US in the EODHD Terminal, Open CRM.US in the EODHD Terminal. 3. Rank the three and reason out which channel drove each — valuation discount for the far-future earnings, dividend competition for the bond-like name, a widening lending spread for the bank. They need not move in three different directions to make the point: in a falling market, the order in which they fell is the uneven pull. 4. Go back to the curve table under "In the data". Is the shortest yield today above or below the 10-year? A bank borrows short and lends long, so say which way that gap pushes its lending margin, and why a utility valued against the 10-year would feel a different rate than the bank does. 5. State the core idea in one line: macro does not move "the market" uniformly — it pulls sectors differently, and that uneven pull is what rotation is.