The 11 Stock Market Sectors You Must Understand Before Investing

Believe it or not, every single stock you can buy or sell fits into one of just eleven sectors.

And here’s the secret most beginner investors miss: what you invest in matters just as much as where.

When you invest, it’s really important to understand which sector a company belongs to, because that tells you a lot about how it makes money, how risky it might be, and how it could perform in different economic conditions.

In this article, we’ll break down all 11 stock market sectors, and also provide a few companies in each sector.

Let's get started.

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1. Energy

What’s in it:

• ExxonMobil (XOM)

• Chevron (CVX)

• NextEra Energy (NEE) 

• First Solar (FSLR) 

• Enphase Energy (ENPH)

What they do:

These companies bring power to the world. Whether it's through oil, gas, solar, 0r wind, these companies drive production and operation for just about everything we use every day. Energy stock prices can swing a lot depending on things like wars or natural disasters, which significantly impact supply chains, and politics (such as a new bill that limits oil drilling) which impact physical supply of the energy. Additionally, shifts in global demand have a substantial effect on stock price.

2. Materials

What’s in it:

• Sherwin-Williams (SHW)

• Dow Inc. (DOW)

• Freeport-McMoRan (FCX)

• Nucor (NUE)

• Linde (LIN)

What they do: 

Materials companies produce the raw materials needed for building and manufacturing everything you use on a daily basis. Think chemicals, steel, paper, and metals. Stock prices in this sector are very sensitive to global demand for the specific material a company is selling. For example, if news broke that a specific rare earth metal was needed for computer chip production, a company mining that metal would rise in value. Conversely, if a previously necessary metal was no longer needed, companies that mine it would lose value. Additionally, trade policies, such as tariffs, may significantly impact the ability of materials companies to export their goods. This could cause substantial swings in stock price.

3. Industrials

What’s in it:

• Boeing (BA)

• Caterpillar (CAT)

• 3M (MMM)

• FedEx (FDX)

• Honeywell (HON)

What they do:

Industrials build, transport, and maintain goods and services. This includes airplanes, construction equipment, shipping, and manufacturing supplies. Their success often depends on how well the economy is growing. That's because economic growth drives demand for these services higher.

4. Utilities

What’s in it:

• Duke Energy (DUK)

• Southern Company (SO)

• NextEra Energy (NEE)

• American Electric Power (AEP)

• Consolidated Edison (ED)

What they do:

Utilities provide the essential services like electricity, water, and natural gas. This sector is well known for having low volatility, as people and businesses always need these services, no matter what's happening in the economy. While similar and related, the utility sector is different than the energy sector. While energy companies focus on producing fuel like oil, gas, and renewable power, utilities companies deliver the service by providing the electricity, water, and gas directly to homes and businesses.

5. Healthcare

What’s in it:

• Pfizer (PFE)

• Johnson & Johnson (JNJ)

• UnitedHealth Group (UNH)

• Moderna (MRNA)

• AbbVie (ABBV)

  
  

What they do:

Health care companies make medicines, develop vaccines, run hospitals, and provide health insurance. Because people need medical care no matter what, this sector is always pretty stable even when the economy is slow or in a recession. However, when demand for healthcare increases, such as during events like the COVID pandemic, these stocks usually appreciate in value significantly.

6. Financials

What’s in it:

• JPMorgan Chase (JPM)

• Bank of America (BAC)

• Goldman Sachs (GS)

• Visa (V)

• Mastercard (MA)

What they do:

These companies handle money in a variety of ways. Some through banking, some through lending, some through credit cards, some through investing, and some through insurance. Their profits often depend on interest rates (set by the Fed) and the overall strength of the economy.

7. Consumer Discretionary

What's in it:

• Amazon (AMZN)

• Tesla (TSLA)

• Nike (NKE)

• Starbucks (SBUX)

• Home Depot (HD)

What they do:

Companies in the consumer discretionary sector sell non-essential goods and services. In other words, they sell wants, not needs. Sales can rise fast when the economy is doing well, as that usually means people are more willing to splurge on goods. On the flip side, stock prices drop sharply during economic slowdowns.

8. Consumer Staples

What’s in it:

• Procter & Gamble (PG)

• Coca-Cola (KO)

• PepsiCo (PEP)

• Walmart (WMT)

• Colgate-Palmolive (CL)

What they do:

Companies in the consumer staple sector provide everyday essentials. That means food, beverages, cleaning products, and toiletries. Because people need these items no matter what, similar to goods in the utilities sector, consumer staples tend to be less risky.

9. Information Technology

What’s in it:

• Apple (AAPL)

• Microsoft (MSFT)

• NVIDIA (NVDA)

• Adobe (ADBE)

• Oracle (ORCL)

What they do:

These companies create the software and hardware that power the internet. They've been popping recently, driving innovation in artificial intelligence, cloud computing, and more. Tech stocks tend to (especially recently) grow quickly, but are also known for high volatility. This means market trends impact tech more significantly, for better and for worse.

10. Communication Services

What’s in it:

• Alphabet/Google (GOOGL)

• Meta/Facebook (META)

• Netflix (NFLX)

• Verizon (VZ)

• Disney (DIS)

What they do:

Companies in the communication services do exactly that, provide communication services. Specifically, that means they connect people through social media, streaming, internet services, phones, and entertainment. Similar to tech, companies in this sector can rise and fall quickly. It's significantly influenced by changes in technology and consumer habits, as well as broader economic trends.

11. Real Estate

What’s in it:

American Tower (AMT)

Prologis (PLD)

Equinix (EQIX)

Simon Property Group (SPG)

AvalonBay Communities (AVB)

What they do:

Real estate companies own and manage properties. Think apartments, offices, malls, and even things like cell towers. Through these companies, investors can earn money from rents and property values without actually buying buildings themselves.

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Bonus Knowledge: SPDR ETFs for each sector

SPDR stands for “Standard & Poor’s Depositary Receipts.” It’s essentially like a family of popular exchange-traded funds (ETFs), all managed by State Street Global Advisors. ETFs are like baskets containing multiple stocks that you can buy or sell on the stock market just like a single stock. When you buy the "basket," your money is distributed between all of the companies in it. For example, if you invest $10 into an ETF, it may put $1 each into 10 different companies.

Let's say you believe the energy sector is going to do very well in upcoming years, but you don't know exactly which energy companies are the best investments. Instead of guessing, you can buy an ETF that tracks the energy sector as a whole, that way you'll automatically have your investments diversified between many different energy companies. The best part? It's not just possible for the energy sector. There are SPDR ETFs for all 11 sectors.

Each SPDR ETF below focuses on a specific sector, so when you buy one, you’re investing in a whole group of companies within that sector. These ETFs track indexes called the S&P 500 Sector Indices. That's not super important to memorize, just understand that those indices represent how well the sector is doing as a whole because they include the biggest companies in each sector.

Here are the SPDR ETFs:

1. Energy

   • XLE — Energy Select Sector SPDR Fund

2. Materials

   • XLB — Materials Select Sector SPDR Fund

3. Industrials

   • XLI — Industrial Select Sector SPDR Fund

4. Utilities

   • XLU — Utilities Select Sector SPDR Fund

5. Health Care

   • XLV — Health Care Select Sector SPDR Fund

6. Financials

   • XLF — Financial Select Sector SPDR Fund

7. Consumer Discretionary

   • XLY — Consumer Discretionary Select Sector SPDR Fund

8. Consumer Staples

   • XLP — Consumer Staples Select Sector SPDR Fund

9. Information Technology

   • XLK — Technology Select Sector SPDR Fund

10. Communication Services

    • XLC — Communication Services Select Sector SPDR Fund

11. Real Estate

    • XLRE — Real Estate Select Sector SPDR Fund

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Which sector do you think will be most successful going forward? Which ETF would you buy? Let us know down below!