The market is filled with so many stocks that they've been broken down into a stock sectors list. The market trades in cycles. As a result, what goes up must come down and visa versa.
The tug of war that ensues from buying and selling can and does cause bull and bear markets. A stock sectors list helps you find stocks that trade better in markets like a bear market.
Whether you're a day trader or an investor, you need to know what stocks are trading the best at different times. Each sector houses many stocks as well as having its own role.
Sectors can be overlooked when the market is booming. However, when correction comes, knowing which sectors are safe is an important part of protecting yourself.
A stock sectors list can be broad. There are 11 sectors. Within each of those are sub sectors.
Sectors allow stocks that have a lot in common to be grouped together. That way you can compare them and see which stocks are outperforming others. How's the sector doing? How are the stocks in that sector fairing again each other?
This information can be quite helpful to traders and investors looking to find a good play in a market that doesn't have many.
We mentioned earlier that there are 11 sectors in a stock sectors list. However, you can break those 11 sectors up into 2 categories; the cyclical and the defensive.
Knowing what each category means can come in handy when the market is taking a downturn or an upturn. All sectors don't run together. The market tug of war is going to influence each category and sector.
The cyclical category makes up 9 sectors and is reactionary. In other words, these 9 sectors react to market conditions. This is why the majority of the stock sectors list is found in the cyclical category.
The defensive category make up just 2 sectors. These are stocks that don't experience loss in an economic downturn. As a result, they're great stocks to add to any investment portfolio.
Just like sports require a good defensive strategy, trading is much the same. You usually don't have a winning offense without a good defense.
What would a stock sectors list be without an actual list? In 1999 a Global Industry Classification Standard was formed as a way to keep the stock market a bit organized.
In fact, per Investopedia, more than 26,000 stocks worldwide have been classified by GICS, accounting for more than 95% of the world's listed market capitalization.
As a result, that allows all traders or investors to classify stocks by regulated definitions.
The following is a list of the 11 sectors that make up the Global Industry Classification Standard or GICS:
Each one of these sectors plays an important role in trading as well as investing.
We know that there are 11 sectors and 2 categories that help to make up a stock sectors list. We also know the role they play.
What two sectors make up the defensive category and why are they important? Utilities and Consumer Staples are the defensive category sectors.
These are the stocks that generate a consistent income no matter the economic climate. We all need water, gas, and electricity right?
You have to pay your utilities bill or you're going to be in trouble. As a result, the utilities company is always see an influx of income.
Consumer staples are food and beverage companies. Just like with utilities we all need food and drink right? Even if the economy is weak we'll be buying food and beverages. We still have to eat.
This is why the defensive category of the stock sectors list always generates an income. It's why it's an important category to invest in and keep an eye on in bearish times.
The cyclical category is made up of the other 9 sectors. These sectors react to what the market does. Which means they can get pretty volatile.
For example, let's take a look at the financial sector. It's made up up banks, investment funds and insurance companies. These react to their environment. Look what happens if an interest rate hike is threaten or happens. The sector goes crazy.
The consumer discretionary and real estate sectors need a booming economy to be profitable. Why? They make money when people are spending money.
People aren't going to go out and buy houses if they have to tighten their belts. The same is true for the consumer discretionary sector.
This sector is made up of clothing companies, media companies, and retailers. You're not going to go out shopping when you have to save your money. Hence why these companies need a booming economy to perform.
The same can be said for the IT and telecom sectors. The IT sector is made up of software developers and electronics companies. You're not going to be buying the latest electronics if you can't afford it.
Same can be said with telecom companies. What's one of the first things to go when you cut back? Cable. Internet companies will always be a strong sub sector because internet has become necessary. As a result, those companies will usually generate income.
The industrial and materials stock sectors list consist of construction, manufacturing, mining, refining to name a few. They're reactionary to their environments and susceptible to change.
Energy and healthcare are the last 2 of the stock sectors list in the cyclical category. The energy sector is made up of oil and gas. They rely on crude oil, natural gas and other commodities.
The healthcare sector could technically be considered defensive because people will always need healthcare. With the inclusion of biotech, there's always room for growth.
A stock sectors list is a great tool to find stocks running in any market condition. In fact, if you want to learn different strategies to employ on all market conditions then take our stock market courses.
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