Stock Market Sectors
What are stock market sectors?
One way investors can classify stocks is associating them to a particular sector within the market. This is done
to make it easier to compare different companies within a similar industry.
It is generally accepted that the market is broken up into 11 different stock market sectors. And each sector falls
into one of two main categories: defensive stocks and cyclical stocks.
Defensive Stocks
Defensive stocks include those of companies that produce utilities or consumer staple goods. They are called defensive
because they don't necessarily rise and fall with the rest of the market. In other words, just because the market is poor
doesn't mean that people stop using their utilities or stop buying items of necessities. As such there is generally little
movement in these particular sectors.
On the other hand, these sectors don't usually see a big increase when the rest of the market is bullish because consumers
don't increase their utility use or buy more staple items just because the economy is good. For this reason, the defensive
stocks have relatively more security than cyclical stocks.
Cyclical Stocks
Conversely, cyclical stocks do tend to rise and fall with the general economy, thus making them more risky, but with that
comes greater possibility or making more money. This doesn't mean, however, that all sectors will go up when the market is
going up, and down when the market is going down. Some may do the opposite and they certainly don't all go up and down
together at the same time.
What follows is a list of nine stock market sectors that are considered cyclical:
- Energy
- Technology
- Communications
- Basic Materials (this includes material that is used to make other products, such as steel or aluminum for cars)
- Capital Goods
- Financial Services
- Transportation
- Consumer Cyclical
- Health Care
