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Stock market sectors divide public companies into different groups based on their lines of business. Grouping stocks by sector helps investors compare the performance of similar stocks, and aids you in diversifying your portfolio.
What Are Stock Market Sectors?
Stock market sectors group together companies that are active in related industries. The Global Industry Classification Standard (GICS) is the primary classification of stock market sectors.
GICS divides the stock market into 11 sectors, and further subdivides the market into 24 industry groups, 69 industries and 158 sub-industries.
The 11 GICS sectors are hardly static, and change over time. For example, the real estate sector was added to the list in 2016, due to the rising profile of the residential and commercial property industry.
“Sectors are a more diversified way for an investor to target opportunities where they broadly want exposure,” says Kyle Hart, founder at Coastal Wealth Planners in Manahawkin, N.J. “For investors, the sector-based approach avoids the risk of targeting an individual company while still positioning themselves for growth in a broader industry.”
The 11 GICS Stock Market Sectors
| GICS Market Sector | Sector Description |
|---|---|
| Energy | Extract, refine and process fossil fuels |
| Materials | Extract and process raw materials |
| Industrials | Manufacture goods, build infrastructure and provide transportation |
| Consumer Discretionary | Make and sell goods that are purchased with disposable income |
| Consumer Staples | Make and sell goods that are everyday necessities |
| Healthcare | Provide healthcare services and make pharmaceuticals |
| Financials | Banking, insurance and other financial services |
| Information Technology | Computer hardware and software goods and services |
| Communication Services | Telecommunications, media and entertainment |
| Utilities | Generate or distribute electricity, natural gas and water |
| Real Estate | Develop and manage real estate |
The Energy Sector
The energy sector includes companies that extract, refine or transport fossil fuels. These can include businesses engaging in the exploration, production and marketing of oil and natural gas, such as oilfield service firms, pipeline and fuel storage companies, and companies involved in coal mining.
Interestingly, the sector does not include most renewable energy companies, which are generally considered either utilities or industrials.
- Sector ETF: Vanguard Energy ETF (VDE)
- Companies: Suncor, ExxonMobil, Peabody Energy
- Stocks: Best energy stocks
2. The Materials Sector
Companies in the materials sector extract or process raw materials, or produce materials for use in manufacturing.
Materials stocks include mining companies, chemical processors, construction supply firms and companies that produce or refine metals like steel or copper.
- Sector ETF: iShares Global Materials ETF (MXI)
- Companies: International Paper, DowDuPont, Vale
- Stocks: Best materials stocks
3. The Industrials Sector
The industrial sector groups companies that manufacture capital goods, build infrastructure and provide transportation services.
Industrial sector stocks include companies that build capital goods like aircraft, electrical equipment, industrial machinery and defense hardware; airlines, railroads and logistics companies; and large engineering firms that build roads, bridges and ports.
- Sector ETF: iShares U.S. Industrials ETF (IYJ)
- Sector Companies: General Electric, 3M, Lockheed Martin
- Stocks: Best industrial stocks
4. The Consumer Discretionary Sector
Consumer discretionary companies are in businesses that depend primarily on consumer demand. The term discretionary is key here as it tells you that these companies sell goods that people purchase with their disposable income, rather than day-to-day necessities.
This sector covers a very wide range of different brick-and-mortar and ecommerce businesses, including apparel, luxury goods, automobiles, hotels and restaurants, and various travel-related firms.
- Sector ETF: Vanguard Consumer Discretionary ETF (VCR)
- Companies: Nike, Starbucks, General Motors
- Stocks: Best consumer discretionary stocks
5. The Consumer Staples Sector
The consumer staples sector provides all the basic necessities of life, from food and beverages to soap and toothpaste. It also includes producers of tobacco and alcohol. The sector contains companies that produce these goods as well as those that sell them.
- Sector ETF: Consumer Staples Select Sector SPDR Fund (XLP).
- Companies: Costco, Walmart, Procter & Gamble
- Stocks: Best consumer staples stocks
6. The Healthcare Sector
Stocks in the healthcare sector can be broadly classified in two groups: companies that develop and manufacture pharmaceuticals and ones that either provide health care services or make the goods used in providing health care.
On the pharmaceuticals side, you’ll find companies that do drug research and development as well as the firms that support them. On the health care services side, there are hospitals, medical equipment manufacturers and health insurance companies.
- Sector ETF: Vanguard Healthcare ETF (VHT)
- Companies: Pfizer, UnitedHealth Group, CVS Health Corp.
- Stocks: Best healthcare stocks
7. The Financials Sector
Financials might be the most straightforward sector of the bunch—if your business is money, then you’re in this sector. Banks, brokerage firms and insurance companies make up the bulk of the sector.
- Sector ETF: Financial Select Sector SPDR Fund (XLF)
- Companies: Bank of America, Goldman Sachs, MetLife
- Stocks: Best financial stocks
8. The Information Technology Sector
Information technology—commonly known as the tech sector—can be broadly divided into two parts: software and hardware.
Companies that manufacture semiconductors, computer and server components, and other types of computer hardware are the heart of the sector. Then there are the software developers and services providers, from database giants to corporate software titans.
Finally, more and more internet businesses have come to dominate the sector, although there are a fair amount of internet companies that find themselves classified under other sectors given their businesses—Amazon, for instance, is a consumer discretionary stock.
- Sector ETF: Vanguard Information Technology ETF (VGT)
- Companies: Oracle, Microsoft, IBM
- Stocks: Best tech stocks
9. The Communication Services Sector
The communications services sector was formerly known as the telecom sector. That accounts for one portion of its members: telecoms, including both wireless networks and the remaining providers of old-school landline services.
The more dynamic portion of the sector includes media and entertainment companies, including legacy radio and television companies as well as the interactive media and internet entertainment firms that are slowly replacing them.
- Sector ETF: Communication Services Select Sector SPDR Fund (XLC)
- Companies: Verizon, Disney, ViacomCBS
- Stocks: Best communications stocks
10. The Utilities Sector
Utilities is another straightforward market sector: It groups companies that generate and distribute electricity, provide natural gas to homes and businesses, and own and manage water resources.
No matter which particular company you look at, there are generally very high barriers to entry to the utilities business given their incredibly capital-intensive needs, and many utilities are highly regulated monopolies in the geographical area they operate in. That makes them low-risk, low-volatility investments that can provide predictable, steady returns over long periods of time.
- Sector ETF: Utilities Select Sector SPDR Fund (XLU)
- Companies: Exelon, American Water Works, NextEra Energy
- Stocks: Best utilities stocks
11. The Real Estate Sector
The real estate sector groups companies that develop and manage large real estate projects together with most real estate investment trusts (REITs), except mortgage REITs, which are included in the financial sector.
- Sector ETF: Vanguard Real Estate Index Fund (VNQ)
- Companies: American Tower, Public Storage, Digital Realty Trust
- Stocks: Best real estate stocks
Stock Market Sectors and Your Portfolio
How should everyday investors leverage sector stocks to expand their own investment portfolio opportunities? Experts advise using as many of the GICS sectors as possible and spreading assets around to diversify their holdings and help protect their investing dollars from risk.
“A diversified portfolio must first have the appropriate dispersion among asset classes (i.e., stocks, bonds, and cash) as a foundation,” Hart says. “Sectors become extremely important to ensure diversified exposure within the stock asset class.”
For example, two investors may both have 60% stocks, 40% bonds as their allocation—yet Investor A may have all of their stock exposure in technology or real estate while Investor B has exposure across all 11 stock sectors.
In that scenario, Investor A would have an extremely different outcome in major market crisis moments like the dotcom crash of 1999-2000 or the housing bubble of 2007-2008.
“Diversified sector exposure ensures that directly correlated events like the technology stock crash or the real estate bubble don’t derail a portfolio,” Hart says.
