While searching for the best title for this blog, we decided to add the word today. Why? Because the stock market sectors are revised from time to time in keeping with market trends. If this blog post were written back in 2015, the stock market sectors would be only 10. The real estate sector was the new entry in 2016 when the need for a separate sector was identified.
Let’s look at why the stock market is broken down into sectors by defining what a stock market sector actually is. Stock market sectors are broader than industries. In particular, a stock market sector is a set of companies with similar business activities in direct competition with each other.
In general, we broadly classify businesses into three sectors: manufacturing, financial services and technology.
There are various classifications systems, with Industry Classification Benchmark (ICB) and Global Industry Classification Standard (GICS) being the most commonly used. GICS was developed in 1999 by the two leading index providers: Standard & Poor’s (S&P) and MSCI (formerly Morgan Stanley Capital International). Its alternative, ICB, was created in 2005 by Dow Jones & FTSE.
The most popular of the two, GICS, is a classification system using codes to sort publicly traded companies into sectors based on their primary business activity.
The 11 GICS sectors are further segmented into 24 industry groups, 69 industries and 158 sub-industries.
Understanding sector breakdown
There are various benefits and reasoning behind breaking the market down into sectors. In trading, the primary use of this breakdown is portfolio diversification. One of the top tips for choosing stocks is to pick an industry and then learn its leaders, trends and strengths.
In the decision-making process, it’s essential to know each company’s business model when exploring growth prospects. Classification facilitates comparing companies with similar activities and, subsequently, the allocation of funds within a portfolio.
Not only that, it allows detailed reporting and stock monitoring while making it easier to keep out undesirable industries.
However, you mustn’t get too tied to the classification. Sometimes, larger companies are active in multiple industries. So, make sure you’re always looking at the bigger picture of what a company does and consider its stage in the business cycle.
Moreover, keep in mind that various market sectors may be affected differently by volatility. Also, look beyond size, and consider how well one sector performs against another.
The 11 GICS stock markets sectors and their 69 industries
Informational Technologies (6): IT Services, Software, Communications Equipment, Technology Hardware, Storage & Peripherals, Electronic Equipment, Instruments & Components and Semiconductors & Semiconductor Equipment.
Stand-out stocks*: Hp Inc [US] (NYSE:HPQ.N), Zoom Video Communications Inc [US] (NAS:ZM.O), Intel Corp [US] (NAS:INTC.O)
Healthcare (6): Health Care Equipment & Supplies, Health Care Providers & Services, Health Care Technology, Biotechnology, Pharmaceuticals and Life Sciences Tools & Services.
Stand-out stocks*: Moderna Inc [US] (NAS:MRNA.O), Sanofi [France] (PAR:SASY.PA), Danaher Corp [US] (NYSE:DHR.N)
Financials (7): Banks, Thrifts & Mortgage Finance, Diversified Financial Services, Consumer Finance, Capital Markets and Mortgage Real Estate Investment Trusts (REITs).
Stand-out stocks*: JPMorgan Chase & Co [US] (NYSE:JPM.N), Paypal Holdings Inc [US] (NAS:PYPL.O), Berkshire Hathaway Inc [US] (NYSE:BRKB.N)
Consumer Discretionary (11): Auto Components, Automobiles, Household Durables, Leisure Products, Textiles, Apparel & Luxury Goods, Hotels, Restaurants & Leisure, Diversified Consumer Services, Distributors, Internet & Direct Marketing Retail, Multiline Retail and Specialty Retail.
Stand-out stocks*: Nike Inc [US] (NYSE:NKE.N), Starbucks Corp [US] (NAS:SBUX.O), McDonald’S Corp [US] (NYSE:MCD.N)
Communication Services (5): Diversified Telecommunication Services, Wireless Telecommunication Services, Media, Entertainment and Interactive Media & Services.
Stand-out stocks*: Netflix Inc [US] (NAS:NFLX.O), T-Mobile Ltd [US] (NAS:TMUS.O), Facebook Inc [US] (NAS:FB.O)
Industrials (14): Aerospace & Defense, Building Products, Construction & Engineering, Electrical Equipment, Industrial Conglomerates, Machinery, Trading Companies & Distributors, Commercial Services & Supplies, Professional Services, Air Freight & Logistics, Airlines, Marine, Road & Rail and Transportation Infrastructure.
Stand-out stocks*: Fedex Corp [US] (NYSE:FDX.N), 3M Co [US] (NYSE:MMM.N), Caterpillar Inc [US] (NYSE:CAT.N)
Consumer Staples (6): Food & Staples Retailing, Beverages, Food Products, Tobacco, Household Products and Personal Products.
Stand-out stocks*: Target Corp [US] (NYSE:TGT.N), Procter & Gamble Co [US] (NYSE:PG.N), Estee Lauder Cos Inc [US] (NYSE:EL.N)
Energy (2): Energy Equipment & Services and Oil, Gas & Consumable Fuels.
Stand-out stocks*: Exxon Mobil Corp [US] (NYSE:XOM.N), Chevron Corp [US] (NYSE:CVX.N), BP Plc [UK] (LSE:BP.L)
Utilities (5): Electric Utilities, Gas Utilities, Multi-Utilities, Water Utilities and Independent Power and Renewable Electricity Producers.
Stand-out stocks*: Evergy Inc [US] (NYSE:EVRG.N), NextEra Energy Inc [US] (NYSE:NEE.N), American Water Works Co Inc [US] (NYSE:AWK.N)
Real Estate (2): Equity Real Estate Investment Trusts (REITs) and Real Estate Management & Development.
Stand-out stocks*: Welltower Inc [US] (NYSE:WELL.N), American Tower Corp [US] (NYSE:AMT.N), Digital Realty Trust Inc [US] (NYSE:DLR.N)
Materials (5): Chemicals, Construction Materials, Containers & Packaging, Metals & Mining, Paper & Forest Products.
Stand-out stocks*: Rio Tinto Plc [UK] (LSE:RIO.L), Linde PLC [Germany] (ETR:LINI.DE), International Paper Co [US] (NYSE:IP.N)
*Per Market Cap
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