Investors worldwide classify listed companies using the GICS (Global Industry Classification Standard), developed by MSCI and S&P, which makes it possible to compare stocks in the same sector across countries.
The 11 Sectors
| Sector | Example Businesses | Characteristics |
|---|---|---|
| Information Technology | Chips, software, hardware | High growth, sensitive to interest rates |
| Communication Services | Social media, search engines, telecommunications | A mix of growth and dividends |
| Consumer Discretionary | Online retail, automobiles, hotels | Depends on consumer purchasing power |
| Consumer Staples | Food, beverages, household goods | Resilient during poor economic conditions |
| Financials | Banks, insurance, securities firms | Benefits when interest rates are moderately high |
| Health Care | Pharmaceuticals, medical devices, hospitals | Relatively resilient |
| Industrials | Machinery, aviation, transportation | Follows the economic cycle |
| Energy | Oil, gas | Depends on oil prices |
| Materials | Chemicals, steel, mining | Follows the cycle and commodity prices |
| Utilities | Electricity, water supply | Steady dividends, sensitive to interest rates |
| Real Estate | REITs, property developers | Highly sensitive to interest rates |
Cyclical Stocks vs Defensive Stocks
- Cyclical stocks, such as industrials, energy, and consumer discretionary, tend to do well when the economy expands and fall sharply when the economy goes into recession.
- Defensive stocks, such as consumer staples, health care, and utilities, are sectors where people still need to eat and use these products no matter what the economy is doing, so they fall less during bear markets.
Sector Rotation
Money in the stock market doesn't flow out anywhere; instead it rotates from one sector to another based on views of the economy. For example:
- When interest rates are expected to fall, technology and real estate stocks tend to attract buying.
- When inflation is high and oil prices rise, energy and materials stocks tend to stand out.
- When recession fears rise, money tends to move into defensive stocks.
Looking at which sectors are leading the market in each period helps you understand what the market is anticipating about the economy.
Sources
For education only, not investment advice. Figures change over time, so check official sources before making decisions.