A look at various market sectors

What is a market sector?
A market sector is a term referring to the way investors and market analysts group certain stocks. With so many different companies, industries, and different markets to invest in, knowing the set of businesses that buy and sell similar products and goods can be useful for a number of reasons.

It is important to know and have a grasp of the different market sectors for a variety of reasons. One reason is to keep your stock portfolio diversified. A diverse portfolio can help you experience less loss when the market dips. So if you have invested just 50% of your stocks in once sector, say, technology, and the other 50% in a more stable sector, if technology stocks plunge you won't have lost all of your money.

Another reason it is important to know the different sectors is to help you evaluate the stock and find relationships between it and other sectors in the market, helping you to make smarter, more educated investing choices.

One common method of breaking the markets into sectors is the Global Industry Classification Standard. This method uses 11 different market sectors, known as cyclical and non-cyclical stocks.

Non-cyclical stocks include:

• Utilities


• Consumer staples


• Tobacco

Cyclical stocks include:

• Transportation


• Technology


• Finance


• Health Care


• Energy


• Consumer Goods


• Basic Materials


• Defensive stocks

The following information will provide a look at various market sectors:

Non-cyclical stocks
Non-cyclical stocks, also referred to as defensive stocks, include utilities, consumer staples, and tobacco. These stocks are referred to as non-cyclical because they remain stable regardless of the state of the economy. Many investment advisors would consider this type of stock a "safe bet" for a number of reasons. Utilities include stocks that deal with energy, such as heating your home or gasoline. Consumer staples are those things consumers need to survive, including food or cleaning and hygiene items. Non-cyclical stocks deal with consumer essentials. Because there is little danger of this type of company going out of business, this is a good type of investment for those who are worried about large downturns in the stock market. It's also a good way to keep your investment portfolio diverse.

Cyclical stocks
Cyclical stocks are the more volatile of the main sectors. This type of stock's performance is correlated with the state of the economy at a given period of time; for example, a booming economy would result in high stock prices (think of the tech boom in the 90's), but in an economic downturn, these are the first stocks to drop. Some investors consider "luxury" items to fall in the cyclical stock category. For example, with gas prices high and consumers being more prudent with their money, many transportation and motor companies have experienced large drops in the stocks. That's because instead of purchasing new, gas-guzzling vehicles, consumers have chosen to hang onto their old cars or buy used ones.

While cyclical stocks may be much riskier, they also have a great potential for a high return when the economy is stable. Because of the volatile nature of this type of stock, it is important to really understand the market, do research, or consult a professional before investing heavily in cyclical stocks.

With so many different stocks in the market, market sectors help to categorize stocks, allowing investors to make more educated decisions when it comes to investing.