The general economy and stock market are organized into two tiers. The highest tier, a sector, is a broad grouping of companies with similar economic characteristics. There are 11 major sectors most investors use when breaking down the corporations and other issuers of securities such as stocks and bonds.
Sectors are broken down into subcategories known as industries. This allows a closer grouping of similar businesses. For example, both Dollar Tree, a discount retail chain, and Tiffany & Company, a luxury jeweler, are included in the consumer discretionary sector. However, they are sorted into different industries.
Why Sectors and Industries Matter
Examining sectors and industries allows you to compare one business to its closest competitors. You may think a certain stock is a good purchase, but until you research its rivals, it's difficult to know for sure.
Looking at sectors and industries helps you become familiar with how businesses interact with one another. For example, if you believe energy prices are going to decline, you might find transportation stocks appealing because you believe one of the biggest cost inputs—gasoline and jet fuel—is about to plummet. When combined with disciplined, long-term investing, such knowledge can be a ticket to building wealth.
With exchange-traded funds (ETFs), you can buy a diversified basket of an entire grouping. ETFs are similar to mutual funds but trade like stocks, and allow you to get exposure to a wide range of investments in a sector or industry without needing to research individual stocks.
Many financial advisers recommend that investors try to maintain a portfolio that offers good exposure to all of these industries and sectors.
From telephone access to high-speed internet, the communication services sector of the economy keeps us all connected and includes stocks such as AT&T and Verizon.
Through the first quarter of 2020, the communications services sector experienced a 10-year growth rate of 39.02%. The S&P 500 during that time grew at a rate of 121.01%.
The communication services sector is made up of five industries:
- Diversified Telecommunication Services
- Wireless Telecommunication Services
- Interactive Media & Services
The consumer discretionary sector consists of businesses that have demand that rises and falls based on general economic conditions. Products in this sector include everything from washers and dryers to sporting goods to new cars to diamond engagement rings and more. Examples of consumer discretionary stocks include Apple, Disney, and Starbucks.
Through the first quarter of 2020, the consumer discretionary sector experienced a 10-year growth rate of 206.59%. The S&P 500 during that time grew at a rate of 121.01%.
The consumer discretionary sector contains 11 industries:
- Automobile Components Industry
- Automobiles Industry
- Distributors Industry
- Diversified Consumer Services Industry
- Hotels, Restaurants & Leisure Industry
- Household Durables Industry
- Leisure Products Industry
- Multiline Retail Industry
- Specialty Retail Industry
- Textile, Apparel & Luxury Goods Industry
- Internet & Direct Marketing
The consumer staples sector consists of businesses that sell the necessities of life, ranging from bleach and laundry detergent to toothpaste and packaged food.
Through the first quarter of 2020, the consumer staples sector experienced a 10-year growth rate of 94.47%. The S&P 500 during that time grew at a rate of 121.01%.
The consumer staples sector contains six industries and includes companies such as Procter & Gamble and Kroger:
- Beverages Industry
- Food & Staples Retailing Industry
- Food Products Industry
- Household Products Industry
- Personal Products Industry
- Tobacco Industry
The energy sector consists of businesses that source, drill, extract, and refine the raw commodities we need to keep the country going, such as oil and gas. Major energy stocks include Exxon Mobil, Chevron, and Halliburton.
Through the first quarter of 2020, the energy sector declined 48.08% over the previous 10 years. The S&P 500 during that time grew at a rate of 121.01%.
The energy sector contains two industries:
- Energy Equipment & Services Industry
- Oil, Gas & Consumable Fuels Industry
The financial sector consists of banks, insurance companies, mortgage real estate investment trusts (REITs), credit card issuers, and a host of other money-centric enterprises that keep the debits and credits of the economy flowing. JPMorgan Chase, Goldman Sachs, and Bank of America are all examples of financial stocks.
Through the first quarter of 2020, the financials sector experienced a 10-year growth rate of 61.12%. The S&P 500 during that time grew at a rate of 121.01%.
The financial sector contains seven industries:
- Banking Industry
- Capital Markets Industry
- Consumer Finance Industry
- Diversified Financial Services Industry
- Insurance Industry
- Mortgage Real Estate Investment Trusts (REITs) Industry
- Thrifts & Mortgage Finance Industry
The health care sector consists of drug companies, medical supply companies, and other scientific-based operations that are concerned with improving and healing human life. Examples of health care stocks include Johnson & Johnson, Gilead, and Pfizer.
Through the first quarter of 2020, the health care sector experienced a 10-year growth rate of 177.15%. The S&P 500 during that time grew at a rate of 121.01%.
The health care sector contains six industries:
- Biotechnology Industry
- Health Care Equipment & Supplies Industry
- Health Care Providers & Services Industry
- Health Care Technology Industry
- Life Sciences Tools & Services Industry
- Pharmaceuticals Industry
The industrial sector comprises railroads and airlines to military weapons and industrial conglomerates. Major industrial stocks include Lockheed Martin and CSX.
Through the first quarter of 2020, the industrials sector experienced a 10-year growth rate of 82.66%. The S&P 500 during that time grew at a rate of 121.01%.
The industrial sector contains fourteen industries:
- Aerospace & Defense Industry
- Air Freight & Logistics Industry
- Airlines Industry
- Building Products Industry
- Commercial Services & Supplies Industry
- Construction & Engineering Industry
- Electrical Equipment Industry
- Industrial Conglomerates Industry
- Machinery Industry
- Marine Industry
- Professional Services Industry
- Road & Rail Industry
- Trading Companies & Distributors Industry
- Transportation Infrastructure Industry
The information technology (IT) sector is home to the hardware, software, computer equipment, and IT services operations that make it possible for you to be reading this right now. From microprocessors to printers, operating systems to cellphone handsets, recent advances in technology have turned IT into a giant part of the domestic and global economies. Top IT stocks include Microsoft and Alphabet.
Through the first quarter of 2020, the information technology sector experienced a 10-year growth rate of 275.27%. The S&P 500 during that time grew at a rate of 121.01%.
The information technology sector contains six industries:
- Communications Equipment Industry
- Electronic Equipment, Instruments & Components Industry
- IT Services Industry
- Semiconductors & Semiconductor Equipment Industry
- Software Industry
- Technology Hardware, Storage & Peripherals Industry
The building blocks that supply other sectors with the raw materials they need to conduct business, the materials sector manufacturers, logs, and mines everything from precious metals, paper, and chemicals to shipping containers, wood pulp, and industrial ore. Major materials stocks include Dow, Dupont, Ecolab, and International Paper.
Through the first quarter of 2020, the materials sector experienced a 10-year growth rate of 38.41%. The S&P 500 during that time grew at a rate of 121.01%.
The material sector contains five industries:
- Chemicals Industry
- Construction Materials Industry
- Containers & Packaging Industry
- Metals & Mining Industry
- Paper & Forest Products Industry
The real estate sector includes all real estate investment trusts (REITs) with the exception of mortgage REITs, which are housed under the financial sector. The sector also includes companies that manage and develop properties and includes stocks such as American Tower, Simon Property Group, and Prologis.
Through the first quarter of 2020, the real estate sector declined 2.77% over the previous 10 years. The S&P 500 during that time grew at a rate of 121.01%.
The Real Estate sector is made up of two industries:
- Equity Real Estate Investment Trusts
- Real Estate Management & Development
The utilities sector of the economy is home to the firms that make our lights work when we flip the switch, let our stoves erupt in flame when we want to cook food, make water come out of the tap when we are thirsty, and more. Utilities stocks include many local electricity and water companies including Exelon and Dominion Resources.
Through the first quarter of 2020, the utilities sector experienced a 10-year growth rate of 86.97%. The S&P 500 during that time grew at a rate of 121.01%.
The utilities sector is made up of five industries:
- Electric Utilities Industry
- Gas Utilities Industry
- Independent Power and Renewable Electricity Producers Industry
- Multi-Utilities Industry
- Water Utilities Industry