The pieces that make up the stock market pie.
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The stock market isnât monolithic. Itâs conveniently divided into sectors that group different companies by the types of business they conduct. The S&P 500 (SPX) and other major stock indexes offer a big-picture view of the entire market, but tracking stock market sectorsâsuch as energy, health care, and technologyâcan tell you whatâs going on beneath the surface, and act as a handy investing guidepost.
If the stock market were a house, sectors would be the rooms. Just as each room has specific types of furniture, each sector has certain types of stocks. You wouldnât put a dining room table in the bathroom, and you wouldnât lump energy giant Exxon Mobil (XOM) in with a bunch of consumer electronics stocks like Apple (AAPL).
Key Points
- U.S. stock market sectors include energy, real estate, financials, health care, and other major major business categories.
- Stock sectors track a given industryâs market performance over time.
- Sector performance shows the impact of trends and economic cycles, which can help you tailor your investment strategy.
Apple goes in the technology room, or sector, along with stocks Cisco (CSCO) and IBM (IBM), for instance, and Exxon Mobil goes in the energy sector with stocks like Chevron (CVX) and ConocoPhillips (COP).
These groupings help investors clearly track a given industryâs market performance through time. On any trading day, or over the course of a year, some sectors may climb while others sink. Seasoned investors typically have at least some idea what drives those different moves, even if they donât necessarily become experts on every sector.
What are the 11 stock market sectors?
The largest U.S. stock market index, the S&P 500, is divided into 11 sectors that group its 500 companies by industry. When you hear someone say sectors, theyâre probably referring to these 11:
Pop quiz
Sector classifications can be tricky. Using Amazon.com (AMZN) as an example, can you see where it fits in?
A. Consumer discretionary. Amazon became famous as an online store. It started as a bookseller and remains many consumersâ first choice for purchasing everything from kitchen utensils to baseball cards.
B. Information technology. Amazon is one of the original Internet stocks that had its first heyday in the late 1990s during what became known as the Internet bubble. Today, Amazonâs business is increasingly driven by its cloud computing segment, Amazon Web Services (AWS), where it competes with products from Microsoft (MSFT), Oracle (ORCL), and other information technology sector bigwigs.
Answer: If you guessed A, youâre right. Amazon remains in consumer discretionary. (For now, anyway, because sometimes stocks change sectors.)
- Carmakers, restaurants, hotels, department stores, clothing and shoe makers, home builders, leisure and recreation companies, consumer electronics makers
- Includes Amazon.com (AMZN), Ford (F), Home Depot (HD), Macyâs (M), Marriott (MAR), McDonaldâs (MCD), Nike (NKE), Tesla (TSLA)
- Characteristics: Volatile, growth-oriented, sensitive to changes in the economy
- Makers of everyday products such as toothpaste and detergent, food companies, grocery stores, soft drink companies, discount stores, beauty supplies
- Includes Albertsons (ACI), Coca-Cola (KO), Costco (COST), General Mills (GIS), Kraft Heinz (KHC), Mondelez International (MDLZ), PepsiCo (PEP), Procter & Gamble (PG), Walmart (WMT)
- Characteristics: Less volatile, historically a dividend payer, often defensive (i.e., attractive during times of market stress)
- Banks, investment banks, credit card providers, insurance providers, online payment companies
- Includes Allstate (ALL), Berkshire Hathaway (BRK.A, BRK.B), BlackRock (BLK), Goldman Sachs (GS), JPMorgan Chase (JPM), Mastercard (M), PayPal (PYPL), Visa (V), Wells Fargo (WFC)
- Characteristics: Growth-oriented, historically a dividend payer, sensitive to interest rates
- Pharmaceutical makers, medical device makers, health insurance firms, biotech
- Includes Amgen (AMGN), Johnson & Johnson (JNJ), Medtronic (MDT), Merck (MRK), Moderna (MRNA), Pfizer (PFE), UnitedHealth Group (UNH)
- Characteristics: Historically a dividend payer, defensive
- Construction companies, agricultural machinery makers, airlines, airplane makers, defense (weapons) contractors, railroads, delivery companies, and waste haulers
- Includes 3M (MMM), American Airlines (AAL), Boeing (BA), Caterpillar (CAT), CSX (CSX), Delta Air Lines (DAL), FedEx (FDX), Lockheed Martin (LMT), United Airlines (UAL), Waste Management (WM)
- Characteristics: Volatile, growth-oriented, historically a dividend payer
- Semiconductor chip makers, computer hardware and software makers, cell phone makers, cloud computing
- Includes Advanced Micro Devices (AMD), Apple (AAPL), Broadcom (AVGO), Cisco Systems (CSCO), Intel (INTC), Microsoft (MSFT), NVIDIA (NVDA), Oracle (ORCL)
- Characteristics: Volatile, growth-oriented, typically high price-to-earnings ratios
- Agricultural commodity companies, miners, paper makers, steel makers, chemical makers
- Includes Alcoa (AA), Dow (DOW), Freeport-McMoRan (FCX), International Paper (IP), Newmont (NEM)
- Characteristics: Volatile, growth-oriented, historically a dividend payer, sensitive to commodity prices
- Real estate investment trusts, property managers, mall owners, public storage companies, office building operators, and communications infrastructure firms
- Includes American Tower (AMT), Crown Castle (CCI), Public Storage (PSA), Simon Property Group (SPG)
- Characteristics: Less volatile, historically a dividend payer, sensitive to interest rates
- Electric, gas, and water utilities; nuclear power companies; renewable energy providers
- Includes Dominion Energy (D), Duke Energy (DUK), Entergy (ETR), Exelon (EXC), NextEra Energy (NEE)
- Characteristics: Traditionally defensive, historically dividend-oriented, and sensitive to interest rates and fuel costs
Who determines sectors?
In 1999, index giants S&P Dow Jones Indices and MSCI created the Global Industry Classification System (GICS), which separated companies and industries into sectors. GICS periodically revises sector classifications. For example, real estate became its own sector in 2016 after splitting from financials, and communication services replaced telecommunications in 2018.
Not all stocks fit neatly into a specific sector.
By tracking sectors, you can learn a lot about the performance of the market and the entire economy. Sure, you could look at the S&P 500âs performance during the past 10 years and get a general view of the marketâs path, but drilling down into stock sector performance is a handy way to learn how economic trends affect different parts of the market in different ways.
How have sectors performed?
This chart compares the performance of the overall S&P 500 to the performance of the 11 sectors over one-, five-, and 10-year time frames.
SECTOR PERFORMANCE MATRIX. The S&P 500 has seen strong performance over the past 10 years, but some sectors, particularly Information Technology, saw outsize returns while others underperformed. Energy, for example, has been the weakest performer over the past 10 years, but its five-year return (197%) has led the pack. Data source: S&P Global. Image source: Barchart. For illustrative purposes only. Past performance is no guarantee of future results.Â
Source: Barchart.com
If utilities have a great year, itâs often (but not always) a sign of rough times for the economy and the overall market. If technology stocks thrive, itâs a sign the economy is doing well and investors are eying long-term returns on innovation.
Following the sectors can help you see whatâs hot and whatâs notâtoday, over the past year, and over longer periods. As with all market data, sector information canât predict the future. It can, however, show you how past trends and economic cycles have affected each sector, which can help you decide how to tailor your investments.
If you want your money to grow, youâll need to invest.
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By dividing your investments into sectors, you can see where you might be overexposed or underexposed. This strategy can help you avoid being overly sensitive to the swings in any one segment. Alternatively, if youâre looking to increase your exposure in a given sector, such as health care or technology, sector analysis can help you zero in on a particular slice of the market.
This article was most recently revised and updated by Dan RosenbergThis article was most recently revised and updated by Doug Ashburn
