You’ve probably heard of stock market sectors, but do you know what they are? The financial sense of the term has a lot in common with how the word is used when, say, a security guard says to some kids, “that sector of the park is off-limits.” It refers to a specific area with certain characteristics. Market sectors are no different, and of the thousands of publicly traded stocks around today, every one of them is a member of one of the 11 stock sectors. So what are the sectors of the stock market? Here’s a brief rundown of all 11 sectors, their key features, star members and the most popular sector ETF for each.
A company with a core business that involves taking some raw material or natural resource and, through a process, converting it into something more useful is almost always labeled a materials stock. Many chemical companies, mining companies, metals businesses and logging companies are in the materials sector, as are some oil and natural gas stocks.
- Major examples: Rio Tinto (RIO), Vale S.A. (VALE) and Ecolab (ECL)
- Sector gains since October 2007 market peak: 76.7%
- Dividend yield (as of 6/30/19): 2.2%
- Largest materials sector ETF (by AUM; expense ratio below 0.15%): Materials Select Sector SPDR Fund (XLB)
Although perhaps more loosely defined than some of the other stock sectors, industrial sector stocks tend to either be involved directly in the production of capital goods like aircraft, electrical equipment, industrial machinery and the like or the provision of transportation services and infrastructure. Many of America’s most iconic blue-chip companies hail from the industrial sector, with many also playing a historic role in the evolution of U.S. society and American military might.
- Major examples: Boeing Co. (BA), Lockheed Martin Corp. (LMT), General Electric Co. (GE), Caterpillar (CAT).
- Sector gains since October 2007 market peak: 124.9%
- Dividend yield (as of 6/30/19): 2%
- Largest industrial sector ETF (by AUM; expense ratio below 0.15%): Industrial Select Sector SPDR ETF (XLI)
There has probably never been so stark and empirical a rebuttal to the glib aphorism, “All press is good press,” than financial sector stocks in the midst of the Great Recession. Banks were failing left and right, with many small- or mid-cap names going bankrupt or being bought out for pennies on the dollar. Even some of the biggest names on Wall Street – like Bear Stearns and Lehman Brothers – failed or were bailed out. A decade later, financials have still not recovered their reputation. The largest banks today are much more gargantuan than they were in the financial crisis.
- Major examples: Bank of America Corp. (BAC), Visa (V), PayPal Holdings (PYPL), Berkshire Hathaway (BRK/A, BRK/B).
- Sector gains since October 2007 market peak: 21.1%
- Dividend yield (as of 6/30/19): 2.3%
- Largest financial sector ETF (by AUM; with expense ratio under 0.15%): Financial Select Sector SPDR ETF (XLF)
Businesses that provide the services and equipment allowing companies to extract sources of energy from the earth are considered a part of this sector, as are most of the companies that do the exploration, production, refining and marketing of fossil fuels like oil, natural gas and coal. Oilfield services companies are considered energy stocks, even if they just help locate a reservoir for a larger company or if they sell the equipment, fluids and materials necessary for horizontal fracturing, known as fracking.
- Major examples: Exxon Mobil Corp. (XOM), Schlumberger (SLB), Kinder Morgan (KMI), Halliburton Co. (HAL)
- Sector gains since October 2007 market peak: 7.7%
- Dividend yield (as of 6/30/19): 3.7%
- Largest energy sector ETF (by AUM; with expense ratio under 0.15%): Energy Select Sector SPDR ETF (XLE)
Sometimes a name can say it all. Consumer discretionary is one of the more aptly named stock sectors; companies within it market their products and services to consumers, not businesses, and what they sell is generally bought with discretionary income; they’re not hawking day-to-day necessities. Though admittedly a generalization, the sector is also sometimes known as consumer cyclical, which makes sense when you consider some industries it encompasses: automobiles, apparel, hotels, restaurants, leisure-related businesses and luxury goods, to name a few.
- Major examples: Carnival Corp. (CCL), Grubhub (GRUB), Lululemon Athletica (LULU), Party City (PRTY).
- Sector gains since October 2007 market peak: 280.6%
- Dividend yield (as of 6/30/19): 1.4%
- Largest consumer discretionary sector ETF (by AUM; with expense ratio under 0.15%): Consumer Discretionary Select Sector SPDR ETF (XLY)
Arguably the premier stock market sector of the 21st century, information technology contains pretty much all the essential industries to today’s internet-powered, device-driven world. Broadly speaking, software, hardware and semiconductors are the three pillars of this sector, which is geographically dominated by Silicon Valley.
- Major examples: Apple (AAPL), Cisco Systems (CSCO), Intel Corp. (INTC), Oracle (ORCL)
- Sector gains since October 2007 market peak: 279%
- Dividend yield (as of 6/30/19): 1.5%
- Largest information technology sector ETF (by AUM; with expense ratio under 0.15%): Technology Select Sector SPDR ETF (XLK)
One of the newest stock market sectors is communication services, which was formerly known as the telecom sector and was redefined in fall 2018. Decades of mergers and consolidation in the arena had made telecom an ultra-concentrated and practically irrelevant sector market-cap wise, and something else was happening, too. Efficient data transmission became increasingly important, and a torrential stream of popular new content that attracted billions of eyeballs demanded smooth and reliable distribution. Today, the communication services sector loosely refers to companies that offer such services (like traditional telecoms) and media and entertainment companies that facilitate communication but also have their own content.
- Major examples: Verizon Communications (VZ), Facebook (FB), Walt Disney Co. (DIS), Comcast Corp. (CMCSA)
- Sector gains since October 2007 market peak: 60.9%
- Dividend yield (as of 6/30/19): 1.4%
- Largest communication services sector ETF (by AUM; with expense ratio under 0.15%): Communication Services Select Sector SPDR ETF (XLC)
One of the fastest-growing parts of the market in recent decades has been real estate, embodied most clearly by the rise of the real estate investment trust. An REIT is a tax-advantaged investment vehicle that can give retail investors a convenient way to gain easy exposure to the cash flows that come with real estate ownership, but without the massive capital outlay required. All REITs except mortgage REITs are contained in this sector; mortgage REITs are found in the financial sector. Also, real estate development companies and management companies fall under this umbrella.
- Major examples: Redfin Corp. (RDFN), American Tower Corp. (AMT), Simon Property Group (SPG), Public Storage (PSA)
- Sector gains since October 2007 market peak: 97.1%
- Dividend yield (as of 6/30/19): 3.3%
- Largest real estate sector ETF (by AUM; with expense ratio under 0.15%): Vanguard Real Estate ETF (VNQ)
Both on Wall Street and Main Street, health care is another sector that’s been growing faster than the wider economy, accounting for an ever-larger percentage of Americans’ expenses (and hopefully, portfolios). You’ve got two broad sides of health care when it comes to its classification in the stock market: the medical device manufacturers and medical services providers on one hand, and the actual biotech and pharmaceutical products – the drugs themselves – on the other.
- Major examples: Johnson & Johnson (JNJ), Pfizer (PFE), McKesson Corp. (MCK), Abbott Laboratories (ABT)
- Sector gains since October 2007 market peak: 219.5%
- Dividend yield (as of 6/30/19): 1.8%
- Largest health care sector ETF (by AUM; with expense ratio under 0.15%): Health Care Select Sector SPDR ETF (XLV)
Without the fruits of this sector, the human species would essentially go extinct. Food manufacturers and distributors; nondurable household goods; personal care products and beverages – the necessities of life that people keep needing and buying no matter how good or bad the economy is. You always need food, toilet paper, laundry detergent, shampoo, toothpaste, etc. The consumer staples sector is one of the most defensive, which means it can hold its own or even advance during a recession, but usually trails the market in expansions.
- Major examples: Coca-Cola Co. (KO), Colgate-Palmolive (CL), Procter & Gamble Co. (PG), Walmart (WMT)
- Sector gains since October 2007 market peak: 188%
- Dividend yield (as of 6/30/19): 3%
- Largest consumer staples sector ETF (by AUM; with expense ratio under 0.15%): Consumer Staples Select Sector SPDR ETF (XLP)
Utilities provide fundamentally necessary services like water, gas, and electricity to local communities and often wider regions. There are very high barriers to entry because of the capital-intensive and geographically limiting nature of their business, often making these companies natural monopolies. For this reason, they’re highly regulated and their profitability is held in check by the government; the only water company for 1,000 miles couldn’t decide to charge $20 per gallon for water, after all.
- Major examples: NextEra Energy (NEE), Duke Energy (DUK), Exelon Corp. (EXC), Dominion Energy (D)
- Sector gains since October 2007 market peak: 128%
- Dividend yield (as of 6/30/19): 3.4%
- Largest utilities sector ETF (by AUM; with expense ratio under 0.15%): Utilities Select Sector SPDR ETF (XLU)
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