What are stock sectors?

The overall stock market is divided into sectors - key areas of the economy. At the time this is being written there are 11 sectors in the U.S., with each sector containing the major stocks that share the same broad focus. Investors often look to implement a strategy that considers sector rotations, which is how sectors come in and go out of favor based on the phase of an economy. Below are the 11 U.S. stock sectors and a brief explanation of each.
  1. Consumer Discretionary
This sector consists of companies which sell products that consumers buy when they have disposable income. It includes apparel manufacturers, media and entertainment companies, retailers and others that benefit from increased consumer spending during an improving economy.
  1. Consumer Staples
The consumer staples companies sell items that are always in demand from consumers, even during tough economic times. This includes personal care products, some pharmaceuticals, and basic food and beverage companies.
  1. Energy
Energy sector stocks are those companies involved in the oil and gas business (exploration or refining) and integrated power companies.
  1. Financials
The financial sector includes banks, insurance companies, real estate firms and other companies tied to finance and money. These companies benefit from higher interest rates.
  1. Healthcare
Healthcare includes anything related to hospital management, medical devices, pharmaceuticals and biotechnology. This sector can be both a growth play and a defensive play. The growth comes from new drugs and devices while the defensive side is because people always need healthcare.
  1. Industrials
Industrial companies are the backbone of manufacturing. The sector includes construction, aerospace, machinery and the defense industry.
  1. Materials
The materials sector includes industries focused on developing, discovering and selling raw materials such as chemicals, and mining or forestry related companies. This group is very vulnerable to economic downturns and can be the first to recover when the economy recovers.
  1. Real Estate
The real estate sector is comprised of retail, commercial and residential real estate firms, who make most of their income from rents and the appreciation of real estate values. The sector is sensitive to interest rates and does better when rates are falling.
  1. Technology
The technology sector is both software and computer hardware developers, manufacturers, and information technology firms. These firms depend on economic growth and their own product cycles.
  1. Telecom
Telecom comprises mobile telecom providers, internet service providers, satellite and cable companies. Income in this sector is primarily from recurring subscriptions, which should keep earnings fairly stable, although some subsets of the telecom industry are facing massive changes.
  1. Utilities
Utilities are the businesses that provide consumers with electricity, water and gas. Revenue is consistent and the sector typically pays higher than average dividends.