Below you can find a description of each of the 11 stock market sectors, as well as the largest companies within them. A stock market sector is a group of public companies that share similar business activities, products and services, or characteristics. idiom Keep reading to learn what stock market sectors are, and why you want to include some of them into your investment portfolio. Whether you own stocks in all market sectors is a matter of personal investing style, risk tolerance, and strategy.
Seek out lower-risk investments like ETFs and mutual funds that are specifically tied to a sector. Sector investing plays an increasingly important role in the strategies that we as investors use today. The real estate sector generally includes two different types of investments related to real estate. Some stocks in the sector are responsible for developing new real estate projects and then managing them by obtaining tenants for various spaces within the project property.
Some of the largest companies in the healthcare sector are Johnson & Johnson, UnitedHealth Group, and Pfizer. The framework created by the Global Industry Classification Standard has four tiers that break companies into 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries. Even then, I’d be remiss if I didn’t reiterate that there are no guarantees while investing in stocks, and following a sector investing strategy is no exception. Start by getting yourself familiar with how the different stock sectors performed over the last year.
The downside of mutual funds include the lack of transparency when buying or selling since you don’t know the price until after the close. The real estate sector consists mostly of companies that own, sell, lease, build, develop, operate and/or manage property. These businesses can range from homebuilders and construction companies to brokers and office management companies and landlords. These market sectors help to comprise benchmark indices such as the S&P 500 Index, which is a widely accepted measure of the performance of the stock market and the economy. The S&P 500 contains the largest and most dominant businesses in the country. Before you dive in and start picking your favorite stock market sectors, you need to gain an understanding of each sector.
Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use. Standard & Poor’s 500 (S&P 500) Index is an unmanaged market-weighted index of 500 of the nation’s largest stocks from a broad variety of industries. The S&P 500 represents about 80% of the total market value of all stocks on the New York Stock Exchange. Market-weighted means that component stocks are weighted according to the total value of their outstanding shares.
More than anything, a basic understanding of the stock market’s 11 core sectors serves to bolster your understanding of the market’s ebbs and flows. By maintaining that knowledge, it can serve as a cornerstone to help you make better decisions as you build your portfolio. Start with a bird’s-eye view … look at the yearly performance of each sector, and then narrow to the monthly performance, and then daily performance. Major news sources report the daily S&P performance of different stock sectors, so you can keep on top of the trends. That’s why you need to diversify your investments and make sure you’re spread into different sectors and increasing your exposure to some more defensive sectors.
The Communication Services sector was created by re-categorising some companies that had previously been IT or Consumer Discretionary and merging them with the pre-existing Telecommunications sector. The Fidelity MSCI Consumer Staples Index ETF offers investors and traders exposure to the Consumer Staples sector by tracking the performance of the MSCI USA IMI Consumer Staples Index. Alternatively, the iShares US Consumer Goods ETF offers exposure to both the Consumer Staples and Consumer Discretionary sector in the US. Genomics-focused ETFs like the ARK Genomic Revolution ETF offer investors exposure to the biotech industry specifically, while the Vanguard Health Care ETF offers broad exposure to the overall sector. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
Option 1: Buy individual stocks in the sector.
Alternatively, you could buy shares of best-of-breed individual stocks within each sector. Rather than broad exposure to a given industry as provided by sector-specific mutual funds or ETFs, this approach gives you more control over where to put your money to work in each sector. But that control comes at the expense of diversification, often results in greater volatility, and requires more time to research the risks and rewards involved with owning individual stocks. The utilities sector is comprised of companies that provide essential services, including electric, natural gas and water. Their customers include residential and commercial customers, as well as independent power companies. As noted in the energy sector description above, the utilities sector also includes renewable electricity producers.
This sector also includes real estate investment trusts , which are companies that purchase multiple income-producing assets, such as office buildings and hotels. Companies within the consumer staples sector make goods that are always needed, such as food, beverages, and household and personal-care products. You’ll also find retail companies that specialize in selling these goods, such as grocery stores. This sector may remain stable or potentially even provide growth during economic slumps. Similar to the materials sector, consumer staples almost matched the growth of the S&P 500 in the three years leading up to mid-2022. During the pandemic-related market drop in 2020, the consumer staples and healthcare sectors dipped but still fared better than the nine others.
The consumer discretionary sector covers goods and services for which consumer demand depends upon consumer financial status. For example, if you make $25,000 per year, you probably buy a different car than someone who makes $25 million per year. The sector includes companies that sell higher-priced items like automobiles and luxury goods, as well as leisure products. You’ll find both brick-and-mortar and e-commerce-based retail companies in this category, along with hotel and restaurant stocks. Financials is another sector that rates as one of the largest, based on market capitalization.
Much like the oil companies, the industrials generate lots of cash flow and have stable dividends. If defense budgets around the world are increasing, you can bet that more cash will be flowing to the defense companies in this sector. Traders can gain exposure to regional banking industries via CFDs— for example, UK Banks or US banks — using our share baskets. Alternatively, ETFs like the Financial Select Sector SPDR Fund provide exposure to a broad range of financial institutions.
Here’s How Mutual Funds Can Protect Your Investments
The S&P sectors, or Global Industry Classification Standard , organize companies based on their primary business activities. Sign Up NowGet this delivered to your inbox, and more info about our products and services. This chart compares the performance of the overall S&P 500 Index to the performance of the 11 sectors over one-, five-, and 10-year time frames.
- House prices have tended to rise consistently over long periods of time.
- The utilities sector includes companies that provide customers with utility services, such as water, electric, and gas.
- The energy sector is made up of companies that explore, produce, and store fuels such as oil, natural gas, and coal.
- The other encompasses healthcare equipment and services, including surgical supplies, medical diagnostic tools, and health insurance.
Investing in Energy Stocks The economy needs energy across sectors to run smoothly, making these companies potential buys. Some of the largest utilities companies include NextEra Energy , Duke , and The Southern Company . Industrials include a wide range of companies, from airlines and railroad companies to military weapons manufacturers. Since the range of companies is so large, the sector has 14 different industries. Two of the largest industries are Aerospace & Defense and Construction & Engineering. The best known names within this sector are Delta Air Lines and Southwest Airlines, FedEx Corporation, and Boeing Company.
SPDR S&P 500 ETF Trust
And today it’s easier than ever for investors to gain exposure to an entire portfolio without investing in individual companies. The stock market sectors are created by the Global Industry Classification Standard , which was developed by S&P Dow Jones Indices and MSCI in 1999. The structure is used globally and is the basis for many mutual funds and maxitrade information about the broker exchange-traded funds . Trading within stock market sectors enables investors to gain exposure to industries that are expected to benefit from particular market-moving factors. Trading on stock market sectors rather than individual companies can reduce the risk of investments completely failing as your risk is spread out across many companies.
And for all five stocks you chose energy stocks because you hypothesized that they would have a good year. One prominent company in this sector is Simon Property Group, which operates malls. AvalonBay Communities and Aimco are some of the larger apartment operators. Since these companies operate regionally (i.e., there isn’t one national electric or water provider in the U.S.) you’d likely only recognize your local utility. That’s because banks give out loans and mortgages, and the higher interest rates all go to the banks.
You’ve probably heard the proverb “Don’t put all your eggs in one basket.” Diversification helps with that because each type of investment offers different potential for gains and losses. So to diversify, a person may choose to invest in stocks across different sectors and company sizes, for instance, and spread some of their money across different asset classes, too. The Global Industry Classification Standard is a system of identifying publicly traded companies according to their business operations.
Other notable sector names include Berkshire forex4you broker review Hathaway, American Express, and Aon plc.
How Many Sectors Are in the Stock Market?
You’ll likely recognize many of the names — the most well-known brands in the world tend to lead their respective stock sectors. Are you wondering how the different stock market sectors affect your portfolio? The answer is to pick a total market fund that can help you get all 11 sectors into your portfolio. Given the outsized proportion of the Financials sector that banks account for, interest rates and the policies of central banks tend to be the most significant market-moving factors in the sector. Low interest rates encourage individuals and businesses to borrow money, which increases Financials sector revenues.
To that end, you can certainly pick and choose which stocks from each sector you want to buy, performing due diligence to maximize your chances of enjoying outsized returns from each sector. Over longer periods of time, holding stocks in all market sectors is a good way to smooth out your returns as weakness in some sectors is offset by strength in others. The industrials sector includes stocks related to the production and distribution of capital goods, typically those used in producing other goods rather than being purchased directly by consumers. The materials sector includes companies that generate most of their revenue from producing and selling products used in manufacturing and other applications. This includes companies involved in chemicals, construction materials, containers & packaging, metals & mining, and paper & forest products.
The GISC was developed by S&P Dow Jones Indices and Morgan Stanley Capital International in 1999. It now serves as the basis for many mutual funds and exchange-traded funds . When you diversify across different sectors and industries, you’re effectively spreading out risk. If one sector underperforms, for example, that could be balanced out by a sector that suddenly takes off. Keeping diversification in mind is important when choosing mutual funds since you don’t want to make the mistake of ending up over-weighted with multiple funds from the same sector.
Hedge Funds Explained
It’s conveniently divided into sectors that group different companies by the types of business they conduct. When building a portfolio, you may be interested in one or more specific market sectors. A sector is a slice of the stock market that represents a certain part of the economy or industry.
Chart Performance figures may vary slightly due to different timeframes used in the calculation. While working in college admission, Melissa Brock pursued a freelance writing and editing career. She currently works as a full-time freelance writer and financial editor covering higher education, investing, personal finance, mortgages, college savings, insurance, and more. The stock market is often divided into eleven sectors, with each sector having unique dynamics affecting its profitability. Investors looking to build exposure to specific sectors can use any number of ETFs to achieve their asset allocation goals.