Stock Market 101: Knowing the Major Sectors
Businesses sharing either the same or related product or service are regarded as belonging to the same sector. A sector is simply an industry or market which shares similar operating characteristics. The economy is a huge place and dissecting it to fragments can help someone better analyze and understand it as a whole.
The need to classify the market into different sectors helps investors to compare these efficiently.
The Existence of Market Sectors
The need for market sectors helps investors determine where to place their stocks and their investments. Each sector has its own set of unique characteristics and distinctive risk profiles that attract certain types of investors.
Aside from the investors, there are analysts and investment professionals who specialize in a particular sector.
The Benefits of Sector Analysis
Serious investors tend to look at sector performance at least on a weekly basis. This is known as sector analysis. When doing sector analysis, the current condition and prospects of a particular sector of the economy is being reviewed and assessed. Its main benefit is providing the investor an overview of how well a group of companies performed in general or as a whole.
There are also investors who are into sector-rotation strategy and use of sector analysis allows them to utilize a top-down approach when selecting which stocks to invest in. It aids investors to identify the most promising sectors and review their performance to further determine if it is worth investing at.
The 10 Sectors of the Market
- Financial Sector
The financial sector contains the banks, real estate firms, investment funds, insurance companies, and the like. Overall, the revenue being generated by this sector comes from loans and mortgages that increases in value along with the rise of interest rates.
- Utilities Sector
This sector consists of electric, water and gas companies including the integrated providers. The sector generates its income by charging consumers and businesses.
- Consumer Discretionary Sector
This sector involves companies that highly benefits when the economy improves and when consumer spending rises. Such companies are retailers, media companies, consumer service providers, consumer durables and apparel companies.
- Consumer Staples Sector
This sector encompasses the food and beverage companies. These companies produce products that consumers cannot live without even the economy declined massively.
- Energy Sector
This sector is comprised of oil and gas exploration and production companies and integrated power firms, refineries and others. This sector generates its income which is tied to the present crude oil, natural gas and other commodities prices.
- Health Care Sector
Biotechnology companies, hospital management firms, medical device manufacturers and the like belong to this sector. This sector is considered to be both showing an opportunity for growth and defensive play since medical aid is always necessary.
- Industrials Sector
Such sector involves aerospace, defense, construction, fabrication, machinery, and manufacturing companies. The growth of this sector is highly dependent on the demand for building construction and manufactured products (i.e. agricultural equipment).
- Technology Sector
This sector covers electronics manufacturers, software developers as well as information technology firms. Such businesses depend on upgrade cycles and the overall health of the economy.
- Telecom Sector
Contained in this sector are wireless providers, internet service providers, cable companies and satellite companies. They acquire their revenues from consumers themselves.
- Materials Sector
Mining, chemical, refining, and even forestry are part of this sector. Not to forget also those companies which are focused on discovering and developing the needed raw materials. Such companies are considered as those starting the supply chain.
Knowing the different sectors gives you the opportunity to compare stocks and how each is performing relative to its peers. Making your investment decisions must have bases. One basis that you can use is sector information.
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