Table of Contents
What is the GICS classification system?
What are the 11 different stock market sectors?
FAQs about stock market sectors
The bottom line
Jul 26, 2022
6 min read
Learn all about how the classification system that separates the stock market into 11 sectors can help investors understand the different sectors of the economy.
With thousands of companies in the U.S. stock market, investors need a system to make sense of it all. To help sort things, companies in the stock market are broken into 11 sectors. Knowing these sectors can help investors understand the market and build diversified portfolios.
The Global Industry Classification Standard (GICS) is a system of identifying publicly traded companies according to their business operations. The GISC was developed by S&P Dow Jones Indices and Morgan Stanley Capital International in 1999. It now serves as the basis for many mutual funds and exchange-traded funds (ETFs).
Each firm is grouped into a sector, which is then further broken down by industry group, industry, and sub-industry. There are 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries. Investors can use a company's classification to construct a diversified portfolio and to identify competitors of a company in the same industry.
Here are the 11 stock market sectors, starting with the highest-growth stock sector from 2017 to 2022 and descending in order.
The information technology sector includes companies that make software, build IT equipment and hardware, implement technological solutions, and produce semiconductor chips. Some of the companies in this sector also make communications equipment such as mobile phones and laptops. Out of the 11 sectors, IT showed the highest growth in the three years leading up to mid-2022 and was the top performer in 2019 and 2020. The IT sector includes some of the market's largest companies, such as Alphabet (Google), Meta (Facebook), and Apple.
Companies in the health care sector provide medical services, make medical equipment, research and produce pharmaceuticals, sell health insurance, and otherwise facilitate health care for individuals. Despite dips in the stock market over the past three years, health care sector gains outpaced those of the S&P 500.
Companies within this sector market their products and services to consumers, who in turn buy these goods with discretionary income. Some of the businesses in this sector are in retail, travel, automobiles, restaurants, and luxury goods, to name a few. The fortunes of many of these companies rise and fall with the economy because they depend on consumers having extra cash to spend. The consumer discretionary sector showed steady growth from 2017 to 2021, but the S&P 500’s growth outpaced this sector in each year.
This sector includes companies that take raw materials or natural resources and turn them into something more usable. Companies that produce chemicals, construction materials, packaging, glass, paper, metals, and more are involved in this sector. Stocks here often do well when the economy is growing, and they're influenced by inflation and changes in the U.S. dollar. The materials sector almost matched the growth of the S&P 500 over the past three years and showed one of the strongest recoveries after the initial market drop in 2020.
Businesses in this sector provide financial services to commercial and retail customers. Generally, that includes brokerage firms along with companies involved in banking, money markets, mortgages, investing, and insurance. Stocks in the financial sector may perform well when rates on loans rise. Lower loan demand, however, may weigh on earning potential. Between late 2020 and late 2021, this was one of the highest-performing sectors in the S&P 500 index.
Companies within the consumer staples sector make goods that are always needed, such as food, beverages, and household and personal-care products. You'll also find retail companies that specialize in selling these goods, such as grocery stores. This sector may remain stable or potentially even provide growth during economic slumps. Similar to the materials sector, consumer staples almost matched the growth of the S&P 500 in the three years leading up to mid-2022. During the pandemic-related market drop in 2020, the consumer staples and healthcare sectors dipped but still fared better than the nine others.
The utilities sector includes businesses that deliver electricity, gas, and water to consumers. Many renewable-energy companies are also included here. This sector has provided steady returns since 2017—and while it only showed modest growth in the first half of 2022, it was only one of four sectors to show growth at all.
Companies in the real estate sector are involved in developing and managing real estate. Here you'll find many real estate investment trusts (REITs) and companies engaged in real estate leasing, management, and development. Growth in this sector lagged in the three years leading up to mid-2022, compared to the S&P 500 index.
Growth in the industrials sector also lagged in the three years leading up to mid-2022, compared to the S&P 500. This sector includes companies that make and sell equipment and provide commercial, professional, and transportation services. Some of the industries in this sector include aerospace, defense, construction, engineering, and infrastructure.
Often the lowest-performing sector in the decade leading up to 2022, communication services is the newest in the lineup and encompasses two major categories: telecommunications services, and entertainment and media. On the telecommunication services end there are companies that provide wireless, fiber-optic, cable, and internet services. In the other category, entertainment and media, there are companies that engage in broadcasting, entertainment, streaming services, social media, and more.
The energy sector is made up of companies that explore, produce, and store fuels such as oil, natural gas, and coal. These businesses engage in a wide range of services, such as exploring, drilling, refining, transporting, manufacturing equipment, and marketing. The energy sector experiences volatility and performs well when oil prices are high. So although energy vastly underperformed the S&P 500 in 2020, the sector turned around and produced the highest returns since then.
The S&P 500 is an index that tracks the performance of the U.S. stock market, based on the stock prices of 500 large domestic companies. All 11 sectors are represented in the S&P 500, but the weightings—which are based on the total market value of the companies in each sector—change over time. As of June 2022, the most heavily represented sector was information technology. The entire breakdown is as follows:
is a method where investors spread their money across different types of investments to reduce exposure to risk. You've probably heard the proverb "Don't put all your eggs in one basket." Diversification helps with that because each type of investment offers different potential for gains and losses. So to diversify, a person may choose to invest in stocks across different sectors and company sizes, for instance, and spread some of their money across different asset classes, too.
The stock market may seem overwhelming, but the classification system that separates the stock market into 11 sectors can help investors understand the different sectors of the economy. An individual can choose to invest in a single company, within an industry, or across multiple sectors to increase exposure and reduce risk. Or, they may choose to invest in a fund that offers exposure to multiple sectors.
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