The stock market is a multi-faceted and diverse site of trading, with 11 sectors classified under the Global Industry Classification Standard (GICS). Here are the basics on the 11 stock market sectors, to help you make informed decisions about where and what you want to trade.
What is a stock sector?
Put simply, a sector is an area of the economy in which businesses share the same or a related product or service. It can also be thought of as a market or industry that shares common operating characteristics.
In the context of the stock market, the Global Industry Classification Standard (GICS) is the primary industry standard for defining sector classifications, and was developed by corporation Standard & Poor’s (S&P) and finance company Morgan Stanley Capital International (MSCI).
The GICS contains 11 stock market sectors, which can be further delineated into 24 industry groups, 69 industries, and 158 sub-industries. The GICS forms the basis of a coding system for the stock market, with every company trading on the stock market being given a code representing one of these 11 groupings. This coding system is an essential part of the stock market, allowing for detailed reporting on each sector through financial technologies.
The consumer discretionary sector consists of luxury items, or services that are not essential for survival- companies in this sector are where consumers spend discretionary income. The demand for these items depends on economic conditions and individual wealth- when people have more disposable income, they’re more likely to spend on non-essential items. Examples of companies in the consumer discretionary sector include Amazon, Target and Starbucks.
Where the consumer discretionary sector consists of non-essential items and services, the consumer staples sector provides services and items necessary for life. Being such an important sector, the consumer staples sector is a more defensive one, and is more resilient in times of economic downturn compared to the consumer discretionary sector. Examples of companies in the consumer staples sector include Procter & Gamble and Tesco.
Companies in the energy sector are responsible for the oil, gas, coal and consumable fuels that much of industry and trade need to run. The energy sector includes companies across all levels of production of these fuels, including exploration and production, refining and marketing, and storage and transportation of these energy sources, as well as companies that offer equipment and services for these operations. Companies in this sector move in correlation with the price of the fuels they produce, and are susceptible to the volatility of oil and gas prices. Examples of companies in the energy sector include Chevron, Shell and Equinor.
The financials sector consists of companies involved in finance, investing, and the movement or storage of money. This includes companies involved in banking, thrifts & mortgage finance, specialized finance, consumer finance, asset management and custody banks, investment banking and brokerage and insurance. Companies in the financials sector are closely tied to interest rates- as interest rates rise, these companies tend to make more money as banks give out loans and mortgages. Examples of companies in the financials sector include JPMorgan, Wells Fargo and Goldman Sachs.
The health care sector includes, as the name suggests, companies involved in all stages of the healthcare industry, from manufacturing and distributing healthcare equipment and services to companies that provide healthcare services. Companies in this sector are generally seen to be safe investments as healthcare services are always in demand, especially during the global pandemic we currently see ourselves in. Examples of companies in the health care sector include Pfizer and Johnson & Johnson.
Companies in the industrials sector include the manufacturers and distributors of various capital goods across a number of industries. These industries include defense, machinery, aerospace, airlines and construction.
The sector also includes providers of logistical services that help keep these industries running smoothly, including: commercial services, environmental and facilities services, office services, security services, human resource services and research services. Companies in this sector tend to generate a lot of cash flow, being essential parts of many industries. Examples of companies in the industrials sector include Boeing, Lockheed Martin and Caterpillar.
The information technology (IT) sector consists of companies involved in all stages of the technology industry, from manufacturers and distributors of hardware to developers of software and IT service providers. The sector has seen a lot of changes in recent years due to exciting developments in technology, and is one of the leading sectors on the stock market. Examples of companies in the information technology sector include Microsoft, Mastercard and Adobe.
The materials sector contains, appropriately enough, companies that manufacture chemicals and materials of all sorts, from construction materials to packaging and minerals, as well as companies involved in mining metals. Companies in this sector are the beginning of global supply chains, providing the raw materials that other sectors need to function, so enjoy a level of financial security. Examples of companies in the materials sector include Valvoline, Sherwin-Williams and the Intertape Polymer Group.
Much like the name suggests, the real estate sector contains companies involved in real estate development and operation, as well as companies offering real estate related services and Equity Real Estate Investment Trusts (REITs). Companies in this sector earn their revenue from rent income and rising property values- since they pay out at least 90% of their taxable profit as dividends to shareholders, some investors take long-term holds in real estate. Examples of companies in the real estate sector include Simon Property Group and Equinix.
The communication services sector includes companies that facilitate communication and offer related content and information through various mediums. Companies in the sector include telecom, media and entertainment companies, including producers of interactive gaming products, as well as companies engaged in content and information creation or distribution through proprietary platforms. Examples of companies in the communication services sector include Netflix, Facebook and Google.
The utilities sector consists of utility companies such as electric, gas and water utilities. It also includes independent power producers & energy traders and companies that engage in generation and distribution of electricity using renewable sources. Much like the consumer staples sector, companies in the utilities sector enjoy a degree of financial security as people will always need the services they provide. Examples of companies in the utilities sector include Duke Energy, E.ON and Thames Water.