How do you think the rising gas prices we saw this year affected the energy sector? What impact has inflation had on the real estate market?
It’s questions like these that smart investors consider as they look for their next investment. While many investors focus solely on the specific companies they own stock in, it’s also beneficial to understand how the various sectors are performing in the market.
From health care to energy, materials to information technology, each sector has unique factors that affect it. The investors that take the extra time to learn how the sectors operate will have a deeper level of insight when making investment decisions.
Join us for a review of the 11 official GICS stock market sectors and why it’s worth understanding them.
This article answers the following questions for new to mid-level investors:
- Why is it important to diversify your portfolio?
- Why do events sometimes affect an entire sector?
- Who is the GICS and why do they have the authority to designate stock sectors?
- What are the 11 stock sectors and the most popular companies from each?
Why Bother Learning the Stock Sectors?
The greatest value of understanding the 11 stock sectors is that it gives you a greater market perspective. It’s the primary way that stocks are categorized, and there’s a sense of purpose and connectivity to these sectors.
Knowledge is power when it comes to investing. Knowing the difference between the consumer discretionary sector and the consumer staples sector, for example, can give you additional insights that help you to understand the market better.
Better understanding leads to better decisions.
Explore some of the other benefits of learning the 11 official stock sectors.
The Importance of Diversifying Your Portfolio
Arguably the paramount rule of safe investing, diversifying your portfolio is the best way to mitigate risk.
Essentially, it means not putting all your eggs in one basket. This is because, in investing, no single asset can be trusted to keep rising in value. Stocks, and sectors, rise and fall, so it’s wise to keep your investment divided across multiple sectors.
When you understand what those sectors are, then you can make smarter decisions when it comes to diversification.
Sometimes an Entire Sector Behaves Similarly in the Market
Another reason to thoroughly understand the 11 sectors is that sometimes they all behave in a similar manner.
For example, throughout 2022, it seemed that every sector was down except for the energy sector. With gas prices at an all-time high, the energy sector was thriving. Ultimately, energy was the best-performing sector last year.
Once you’re confident in what the sectors are, you’ll be able to notice trends that have the greatest effect on stocks from that sector.
Developing a Solid Foundation of Investment Knowledge
A certain percentage of people will simply want to put their money somewhere and not pay attention to stocks again. And that’s fine, everyone has their own interests.
But if you’ve read this far, you’re probably the type that wants to understand as much about investing as possible. The more you know, the more clarity you’ll have when reading the market.
For the sake of becoming a higher-level investor who accurately interprets news when you read it, it’s worth having a cursory understanding of the various sectors.
What is the GICS and Why Do They Determine Stock Sectors?
The Global Industry Classification Standard (GICS) is a hierarchy that consists of 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries.
Not an entity itself, GICS is simply a globally-accepted standard invented by MSCI and the S&P Dow Jones.
As new industries grow, GICS may change, paving the way for new stock sectors.
Understanding the 11 Stock Sectors: A Brief Overview
Whether to improve your diversification choices or for a better understanding of investing in general, it’s beneficial to learn the differences between the stock sectors. This overview covers each sector and some popular companies within it.
1. Energy Sector
Not to be confused with the utilities sector, the energy sector actually covers the fossil fuels that we need to make electricity. Companies that work with fossil fuels, including oil and natural gas, are included in the energy sector.
Top Companies in the Energy Sector
- Exxon Mobil Corp. (XOM:NYSE)
- Chevron Corp. (CVX:NYSE)
- Shell Plc. (SHEL:NYSE)
2. Materials Sector
Any business related to extracting and processing raw materials will be included within the materials sector.
Steel refineries, chemical companies, and vendors who provide supplies for construction projects are examples of industries in the materials sector.
Top Companies in the Materials Sector
- Glencore PLC (GLNCY)
- Vale SA (VALE)
- Sherwin-Williams Co (SHW)
3. Industrials Sector
Infrastructure and transportation are the core industries in the industrials sector. This includes companies that build bridges and railroads, create electrical equipment and defense hardware, and other functions that make society run.
Top Companies in the Industrials Sector
- United Parcel Service Inc. (UPS)
- Raytheon Technologies (RTX)
- Caterpillar Inc. (CAT)
4. Consumer Discretionary Sector
Luxury goods and services are the stocks you’ll find in the consumer discretionary sector. These products are more for vanity than survival and include cars, sports gear, lavish vacations, gadgets, and jewelry.
You’ll recognize most of the names in the consumer discretionary sector since they include popular restaurants and famous car companies.
Top Companies in the Consumer Discretionary Sector
- Amazon.com Inc. (AMZN)
- Nike Inc. (NKE)
- The Home Depot Inc. (HD)
5. Consumer Staples Sector
Unlike the consumer discretionaries sector, consumer staples involves products people need for survival.
Many of the products you see in your local supermarket or drugstore are consumer staples. Products for your house, your body, and food products are considered consumer staples.
You’ll recognize many of the companies in the consumer staples sector because you’ve probably seen them on shelves of your favorite stores and may have used them yourself.
Top Companies in the Consumer Staples Sector
- PepsiCo Inc. (PEP)
- Procter & Gamble Co. (PG)
- Walmart Inc. (WMT)
6. Health Care Sector
From pharmaceutical companies and medical research to cannabis and other health services, the health care sector is among the largest in the U.S.
Widely-used medications like Tylenol are included within the health care sector, and Johnson & Johnson is arguably the most prominent company in that category.
Top Companies in the Health Care Sector
- Biogen Inc. (BIIB)
- Vertex Pharmaceuticals Inc. (VRTX)
- Signify Health Inc. (SGFY)
7. Financials Sector
Banks, credit card companies, mortgage lenders, and any other company that manages money are part of the financials sector.
Since the financials sector includes one of the most stable types of businesses–banks–it’s considered a safer investment than many other stocks. Consider investing in the financials sector to add strong, relatively low-risk investments to your portfolio.
The financials sector has another beneficial use for economists: a healthy financials sector indicates a strong economy.
Top Companies in the Financials Sector
- Visa (V)
- JP Morgan Chase (JPM)
- Bank of America (BAC)
8. Information Technology Sector
Internet companies have grown massively in the past decade, as have computer parts and accessories. Those are all examples of the IT sector, and with new technology emerging on a regular basis, this sector is growing consistently.
A Zippia report revealed that the tech industry comprises 35% of the world market.
From e-commerce to AI, hardware to software, the IT sector includes all of the companies that are evolving the way we communicate and conduct business.
Top Companies in the Information Technology Sector
- Apple Inc. (AAPL)
- Sony Corp. (SNE)
- Intel Corp. (INTC)
9. Telecommunication Services Sector
Any business that provides wi-fi, satellite communications, or cable services, is part of the telecommunications sector.
Virtually every American uses smartphones and the internet, and neither of those would be possible without effective telecommunication companies.
Top Companies in the Telecommunication Services
- Dish Network Corp. (DISH)
- The Walt Disney Co. (DIS)
- T-Mobile US Inc. (TMUS)
10. Utilities Sector
The same utilities you pay for in your own home are the types of companies included in the utilities sector. This includes crucial services like water, gas, and electrical power.
While the companies in the utilities sector aren’t as famous or popular as other sectors, they’re arguably the most important. Almost no other company would be possible without the utilities to keep it running.
Since many companies in the utilities sector are energy companies, it can be easy to confuse them with that sector. However, the key difference is that the energy sector pertains to fossil fuels, whereas the utilities sector includes the services you need to keep your house running.
Top Companies in the Utilities Sector
- Sempra Energy (SRE)
- Brookfield Renewable Corp. (BEPC)
- UGI Corp. (UGI)
11. Real Estate Sector
Although the real estate sector only makes up 2.9% of the S&P 500, it’s the newest and most rapidly growing sector.
Companies related to residential, commercial, and industrial real estate are included in the real estate sector.
Note that you can also invest in the real estate market, but this sector is pertaining to stocks. The real estate housing market offers its own opportunities for investment and building wealth.
Lesser known aspects of real estate include roads, fixtures, and skyscrapers which are all critical parts of the real estate sector.
Top Companies in the Real Estate Sector
- Public Storage (PSA)
- Welltower Inc. (WELL)
- American Tower Corp. (AMT)
