The analysis essentials / 04
Market sectors,
made understandable.
See how the stock market is sorted into 11 sectors, what tends to drive each group, and how to use sectors to understand what you own.
01 / Learn the map
Eleven sectors sort thousands of companies.
Most U.S. stock indexes group companies with the Global Industry Classification Standard (GICS), created by MSCI and S&P Dow Jones Indices. Each company gets one sector based on its main business, which makes it easier to compare similar companies and see what a fund really holds.
It is a label, not a prediction.
GICS has four levels: 11 sectors at the top, then industry groups, industries, and more than 150 sub-industries.
A company is placed by its principal business activity. Revenue matters most, but earnings and how the market sees the company are considered too.
The map gets redrawn.
GICS is reviewed every year, and companies can move.
In 2018, a new Communication Services sector took in companies such as Alphabet and Meta from technology. In 2023, payment processors such as Visa and Mastercard moved from technology to financials.
A few giants can dominate.
In a market-value-weighted index such as the S&P 500, the biggest companies carry the most weight.
Information technology has been the largest sector by market value in recent years, and a handful of companies make up a large share of it.
The 11 sectors at a glance.
GICS sectors · grouped the way chapter 2 describes them
Tied to spending and growth
Steadier demand
Tap a sector to read about it. Tiles are the same size on purpose; they do not show how big each sector is. The groupings are tendencies, not rules.
Why is Amazon in consumer discretionary and Alphabet not in technology?
GICS looks at where a company earns most of its money. Amazon’s largest business is retail, so it sits in consumer discretionary even though its cloud business is large. Alphabet earns most of its revenue from advertising, which places it in communication services. Sector labels do not always match how people talk about a company.
Are sectors the same as investment themes?
No. Themes such as artificial intelligence or clean energy cut across several sectors. An AI-related fund might hold chipmakers (technology), cloud and search companies (communication services or consumer discretionary), and power producers (utilities).
Where can I see today’s sector numbers?
Sector sizes and returns change every day, so this guide does not list them. Market Pulse shows live Sector Performance for the 11 sector funds and a Sector Heatmap of individual S&P 500 companies.
Sources: MSCI: about GICS ↗ · 2023 GICS changes ↗
02 / Meet the sectors
Each sector has its own drivers.
Some sectors rise and fall with spending and growth, some with commodity prices, and some have steadier demand. These are tendencies, not rules: every sector has lost money in some periods, and news about a single large company can outweigh the broader pattern.
Tied to spending and growth.
These sectors tend to be more sensitive to the economy, business investment, and interest rates. Open any one for a closer look.
Information Technology
What’s inside: software, semiconductors, computers and devices, and IT services.
Often driven by: business and consumer spending on technology and product cycles. Because many of these companies are valued on expected future growth, their prices can be sensitive to interest rates.
Examples: Apple, Microsoft, Nvidia.
Communication Services
What’s inside: telecom carriers, media and entertainment, and interactive media such as search and social platforms.
Often driven by: advertising budgets, subscriptions, and regulation.
Examples: Alphabet, Meta Platforms, Verizon.
Consumer Discretionary
What’s inside: goods and services people can put off: cars, non-essential retail, homebuilders, hotels, restaurants, and travel.
Often driven by: household income, jobs, and confidence.
Examples: Amazon, Tesla, Home Depot.
Industrials
What’s inside: aerospace and defense, machinery, construction and engineering, airlines, railroads, and business services.
Often driven by: business investment, infrastructure and defense spending, and trade volumes.
Examples: Caterpillar, GE Aerospace, Union Pacific.
Financials
What’s inside: banks, insurers, asset managers, exchanges, and payment processors.
Often driven by: interest rates, credit quality, and market activity. Higher rates can widen what banks earn on loans, but they can also raise funding costs and loan losses, so the effect is not one-directional.
Examples: JPMorgan Chase, Berkshire Hathaway, Visa.
Tied to commodity prices.
These sectors’ revenues and profits often move with the prices of the raw materials they produce, which can swing sharply.
Energy
What’s inside: oil, gas, and coal producers, refiners, pipelines, and equipment and service companies.
Often driven by: oil and natural gas prices, which respond to global demand, supply decisions, and geopolitical events. Renewable power producers are mostly classified in utilities, not energy.
Examples: ExxonMobil, Chevron.
Materials
What’s inside: chemicals, metals and mining, construction materials, and packaging.
Often driven by: commodity prices and industrial demand around the world.
Examples: Linde, Sherwin-Williams, Freeport-McMoRan.
Steadier demand, with other sensitivities.
People keep buying these products and services in weaker economies, but that does not make the stocks immune to losses. Several are sensitive to interest rates or government policy instead.
Consumer Staples
What’s inside: food, beverages, household and personal products, tobacco, and retailers of everyday goods such as grocery and discount stores.
Often driven by: steady demand, balanced against input costs and how much companies can raise prices.
Examples: Procter & Gamble, Coca-Cola, Walmart.
Health Care
What’s inside: drugmakers, biotechnology, medical devices, hospitals and other providers, and health insurers.
Often driven by: steady demand for care, alongside drug approvals, patent expirations, and government policy on pricing and coverage.
Examples: Eli Lilly, Johnson & Johnson, UnitedHealth Group.
Utilities
What’s inside: electric, gas, and water utilities, plus independent and renewable power producers.
Often driven by: regulated pricing and large borrowing needs, which makes the sector sensitive to interest rates. Rising electricity demand can matter too.
Examples: NextEra Energy, Duke Energy.
Real Estate
What’s inside: real estate investment trusts (REITs) that own properties such as warehouses, apartments, offices, and cell towers, plus property managers and developers.
Often driven by: interest rates, rents, and occupancy. REITs must pay out most of their taxable income as dividends, so they often borrow or issue shares to grow.
Examples: Prologis, American Tower.
Company names are well-known examples of each sector’s classification, not recommendations. Classifications can change.
03 / Use sectors wisely
Use sectors to understand, not to time.
Sectors help you see what is driving the market and how concentrated your own holdings are. Stories about which sector leads in each stage of the economy are tendencies with many exceptions, not a timing system.
One broad fund plus a sector fund.
Fictional example · $10,000 total · the broad fund holds 30% in Sector A
Choose how much of the $10,000 goes into a Sector A fund, with the rest in the broad fund, and see your total exposure to Sector A:
With only the broad fund, 30% of your money is already in Sector A, because the fund holds it.
Illustrative figures. Real funds publish their sector weights, and those weights change as prices move.
Check for overlap.
A broad index fund already owns every sector. Adding a sector fund or individual stocks on top can raise your exposure to one area more than you expect.
Fund fact sheets list sector weights, so you can add up your total.
Compare like with like.
Normal profit margins, debt levels, and valuations differ widely between sectors. A software company and a utility run on very different economics.
Comparing a company with its own sector and its own history usually tells you more than comparing it with the whole market.
Treat rotation stories with care.
A common framework links sectors to phases of the business cycle, such as consumer discretionary in early recoveries and staples or utilities in downturns.
In practice, phases are hard to identify as they happen, markets often move before the data, and leadership frequently breaks the pattern.
What is a sector ETF?
An exchange-traded fund that holds stocks from one sector, such as the Select Sector SPDR funds (tickers XLK, XLF, XLV, and so on) that track the S&P 500’s sectors. Before using one, check its holdings, how much its largest companies weigh, and its expense ratio. A sector fund is less diversified than a broad index fund.
What does “equal-weight” mean?
A market-value-weighted fund gives the biggest companies the biggest weight. An equal-weight fund holds each company in roughly the same amount and rebalances regularly, so smaller companies matter more. Neither approach is better in every period; they simply give different exposures.
Are defensive sectors safe?
No sector is safe from losses. Staples, health care, and utilities have often fallen less than the market in downturns, but they can still decline, and they can lag behind when the broader market rises. Their prices also react to interest rates and company-specific news.
Keep learning
Source: SEC: asset allocation, diversification, and rebalancing ↗