The stock market is huge in numbers, since investors are truly spoiled for choice when considering which company stock to invest in. A good way to navigate themselves and avoid confusion is to be aware of the different stock market sectors that exist. Each stock market sector consists of a distinct group of different stocks, which have a lot in common, since they usually pertain to companies in the same industry or very similar industries. The most commonly used classification system is the Global Industry Classification Standard (GICS) and we shall by using this system in order to overview the main stock marker sectors. Such a categorisation of stocks is very useful and helpful for stock investors, since it allows them to concentrate on stocks from the sectors that interest them, while easily make more effective comparisons between sectors and amongst companies in the same sector, revealing which stocks make the most money. According to the GICS, the stock market is mainly divided into the following sectors:
As revealed by its name, the energy sector includes those companies whose main activity is in the oil and natural gas industries. Oil and gas exploration and production companies feature high in this sector, as are the companies producing coal, ethanol, and other types of consumable fuels. It should be noted though that renewable energy company is not classed under the energy sector, but under the utility sector instead. The energy sector also includes businesses closely related to energy production, such as businesses that provide equipment, materials, and services to oil and gas producers.
The materials sector is a wide encompassing sector since the companies classed under it are those providing a vast array of goods for use in manufacturing and related fields. Mining companies, companies making paper and other forest products, companies manufacturing chemicals and construction materials, as well as companies making containers and other packaging materials, are also classed under the materials sector.
The industrials sector houses many conglomerates and it is a sector that includes numerous companies with different economic activities, all of which entail the usage of heavy equipment. Under the industrials sector, investors can find the stocks of companies in the transportation field, such as airlines, railroads and logistics companies, while companies in the fields of aerospace, construction, engineering and defence, are also classed under the industrials sector. Moreover, this sector includes companies that manufacture electrical equipment and machinery, as well as building products.
The utility sector covers an array of companies that specialize in the provision of utilities to consumers, such as those companies which provide both residential and industrial consumers with electricity, natural gas, and water. Some utility companies are active in the provision of more than one utility, while the utilities sector also houses the producers and distributors of renewable energy sources.
The healthcare sector is divided into two main subcategories. The first includes the pharmaceutical and biotechnology companies, as well as companies producing the supplies and tools necessary to test the effectiveness and safety of treatments in labs and clinical trials. The second subcategory of the healthcare stocks sector houses companies that provide health insurance services and those companies that provide medical diagnostics tools, healthcare equipment, surgical supplies, and services related to such equipment and tools.
Businesses whose primary activity is the handling of money are classed under the financial sector. Obviously, this sector includes banks and financial institutions, as well as insurance companies, brokerages and trusts which deal with real-estate investments and mortgage related issues. The financial sector also includes providers of finance products to consumers as well as financial brokerage houses.
The consumer discretionary sector pertains to the providers of goods and services, the demand for which depends on the financial status of consumers, i.e. luxury goods and services, such as higher-priced cars, or even luxury hotels and restaurants. Since the luxury market is wide and varied, the consumer discretionary sector includes both brick-and-mortar retailers, as well as e-commerce vendors of such luxury goods and services.
The rapidly growing information technology sector includes all companies from different fields, whose main activity is that of technological innovation. Besides the software developing companies and companies providing services related to the implementation of technological solutions, the information technology sector also includes companies that provide and build the hardware necessary for technological solutions and innovations, such as equipment, components, and semiconductors.
The communication services sector is a new addition to the GICS classification system, created to house companies active in areas that were previously classed under other sectors, mainly due to the rapid growth and development of the sector itself. The sector of communication services is further divided into two main subclasses. The first includes the providers of telecommunication services, both landline, and wireless, while the second subcategory pertains to companies active in the media and entertainment fields, ranging from traditional media such as television and radio, to newer forms of interactive media available online.
The real estate sector houses all companies related to real estate investments, such as companies that develop real estate projects and those that manage the project and obtain tenants for such properties. Moreover, businesses such as most real estate investment trusts and funds, which enjoy a special tax status, are also classed under the real estate sector.
Service stocks are the stocks of companies falling under the service sector. This is comfortably the biggest sector of economic activity, both in terms of income generation but also in terms of the numbers of companies involved in the provision of services, which encompass a widely varied spectrum.