Method of sorting companies based on primarily business activity
Written byJeff Schmidt
Updated March 5, 2023
What are the S&P Sectors?
The S&P sectors constitute a method of sorting publicly traded companies into 11 sectors and 24 industry groups. Created by Standard & Poor’s (S&P) and Morgan Stanely Capital International (MSCI), they are also known as the Global Industry Classification Standard (GICS). S&P sorts companies into sectors based on their primary business activity.
Uses of Breaking Down into Sectors
Sector breakdowns help portfolio managers and investors determine the allocation of funds within a portfolio. If an investor wants to create a diversified portfolio, the portfolio should include stocks from a variety of sectors. For smaller investors seeking to create a diversified portfolio, they can easily do by investing in an index exchange-traded fund (ETF). However, if an investor is only interested in investing in, for example, technology or energy-based businesses, they can, of course, confine their investing to only the sectors they are interested in.
- The S&P sectors, or Global Industry Classification Standard (GICS), organize companies based on their primary business activities.
- Investors can use the sectors to isolate stocks of specific interest or to build a diversified portfolio.
- The order of the 11 sectors based on size is as follows: Information Technology, Health Care, Financials, Consumer Discretionary, Communication Services, Industrials, Consumer Staples, Energy, Utilities, Real Estate, and Materials.
Overview of the S&P sectors
1. Information Technology
The information technology – IT – sector consists of companies that develop or distribute technological items or services, and includes internet companies. Technology products include computers, microprocessors, and operating systems. Example of companies in this sector includes big names like Microsoft Corporation, Oracle Corp., and Mastercard Inc. This sector has seen a lot of change in recent years because of the rapid rise in technology-based companies.
Health care consists of medical supply companies, pharmaceutical companies, and scientific-based operations or services that aim to improve the human body or mind. Familiar names include Johnson & Johnson, a medical device and pharmaceutical company that owns Tylenol, and Abiomed, which manufactures medical implant devices.
Cannabis companies are a new, but rapidly growing, part of the health care sector. Currently, the more well-known ones include Canopy Growth Corp. and Aurora Cannabis, with market caps of $23 billion and $12 billion, respectively.
The financial sector includes all companies involved in finance, investing, and the movement or storage of money. It includes banks, credit card issuers, credit unions, insurance companies, and mortgage real estate investment trusts (REITs). Companies within this sector are usually relatively stable, as many are mature, well-established firms. Banks in this sector include Bank of America Corp,JPMorgan Chase & Co., and Goldman Sachs. Other notable sector names include Berkshire Hathaway, American Express, and Aon plc.
4. Consumer Discretionary
Discretionary consumer products are luxury items or services that are not necessary for survival. The demand for these items depends on economic conditions and the wealth of individuals. Products include cars, jewelry, sporting goods, and electronic devices. Luxury experiences include trips, stays at hotels, or dining in a posh restaurant. Most companies in this sector are easily recognized. Some examples include Starbucks, Best Buy, and Amazon.
5. Communication Services
The communication services sector consists of companies that keep people connected. This includes internet providers and phone plan providers. The more exciting part of the sector includes media, entertainment, and interactive media & services companies. Netflix Inc. and Walt Disney Co. are considered part of the communication services sector. Other companies within this sector include AT&T, CBS Corp., and Facebook.
Industrials include a wide range of companies, from airlines and railroad companies to military weapons manufacturers. Since the range of companies is so large, the sector has 14 different industries. Two of the largest industries are Aerospace & Defense and Construction & Engineering. The best known names within this sector are Delta Air Lines and Southwest Airlines, FedEx Corporation, and Boeing Company.
7. Consumer Staples
Consumer staples companies provide all the necessities of life. This includes food and beverage companies, household product providers, and personal product providers. Consumer staple companies are well known, since people see their products in stores regularly. For example, Procter & Gamble is a famous company within this sector, which produces bleach and laundry detergent under brand names such as Dawn and Tide. Another example is Kroger, which is the largest supermarket chain in the U.S.
The energy sector consists of all companies that play a part in the oil, gas, and consumable fuels business. This includes companies that find, drill, and extract the commodity. It also includes the companies that refine the material and companies that provide or manufacturer the equipment used in the refinement process. Companies such as Exxon Mobil and Chevron extract and refine gas, while companies like Kinder Morgan transport fuel to gas stations.
Utility companies provide or generate electricity, water, and gas to buildings and households. For example, Duke Energy generates and distributes electricity, and Southern Company provides gas and electricity. Many utility companies are developing more renewable energy sources.
10. Real Estate
As the name suggests, the newest addition to the S&P sectors includes Real Estate Investment Trusts (REITs), as well as realtors and other companies. The real estate sector makes up 2.9% of the S&P 500. Companies in the sector include American Tower Corp., Boston Properties, and Equinix.
Companies within the materials sector provide the raw material needed for other sectors to function. This includes the mining companies that provide gold, zinc, and copper, and forestry companies that provide wood. Companies that are not typically associated with materials but are in the sector include container and packaging companies such as the Intertape Polymer Group, a company that produces tape.
To learn more about the materials sector, take a look at CFI’s Mining Valuation & Financial Model Course.
Thank you for reading CFI’s guide on The S&P Sectors. To keep advancing your career, the additional CFI resources below will be useful:
Is S&P diverse enough? ›
Generally, yes. The S&P 500 is considered well-diversified by sector, which means it includes stocks in all major areas, including technology and consumer discretionary—meaning declines in some sectors may be offset by gains in other sectors.Why not put all your money in S&P 500? ›
Invest Across Asset Classes
Investing only in the S&P 500 limits your portfolio to stocks, which can be a risky decision during major market crashes. Holding bonds, cash, real estate, and other assets can help to limit your risk during these periods.
The best performing Sector in the last 10 years is Information Technology, that granded a +19.15% annualized return. The worst is Energy, with a +4.34% annualized return in the last 10 years. The main S&P 500 Sectors can be easily replicated by ETFs.What are the 11 sectors of S&P? ›
The order of the 11 sectors based on size is as follows: Information Technology, Health Care, Financials, Consumer Discretionary, Communication Services, Industrials, Consumer Staples, Energy, Utilities, Real Estate, and Materials.Is it hard to beat S&P? ›
Almost every institutional investor would like to find an investment manager with a high probability of outperforming the S&P 500. It is widely acknowledged to be one of the most efficient markets and most difficult benchmarks to beat. For a typical pension plan, 35-40 % of all capital is invested in the S&P 500.What percent of traders beat the S&P? ›
The latest SPIVA report is typical: Just 17% of US large-cap stock pickers beat the S&P 500 over the past 10 years through 2021, and that number drops to 6% over 20 years. Time makes a fool of most stock pickers.How much would $10000 invested in the S&P 500 in 1980 be worth today? ›
Assuming an expense ratio of 0.1% on your index fund (you can find even lower costs now), this means that a $10,000 investment would have turned into just over $760,000 as of Feb.Should I put all my 401k in S&P 500? ›
It's never a good idea to place all your savings in any single investment, even one with as much appeal as an S&P 500 index fund.Is it smart to invest everything in the S&P 500? ›
Legendary investor Warren Buffet once said that all it takes to make money as an investor is to 'consistently buy an S&P 500 low-cost index fund. ' And academic research tends to agree that the S&P 500 is a good investment in the long term, despite occasional drawdowns.What sectors are performing poorly? ›
- Author Brian Scheid.
- Theme Healthcare & PharmaceuticalsReal EstateBankingFintechInsurance.
Which sectors outperform during inflation? ›
Several asset classes perform well in inflationary environments. Tangible assets, like real estate and commodities, have historically been seen as inflation hedges. Some specialized securities can maintain a portfolio's buying power including certain sector stocks, inflation-indexed bonds, and securitized debt.Which sector has the highest returns historically? ›
The best sector funds have historically focused on industries like technology, health care, and consumer discretionary goods and services. There's no way to time the market or guarantee that you will beat its average returns in the long run, so always invest with caution.Which S&P sectors are defensive? ›
There are three main defensive sectors: Utilities, Consumer Staples, and Health Care.What is the fastest growing sector in the S&P 500? ›
- Information Technology Sector. Growth: 29.72% ...
- Health Care Sector. Growth: 15.83% ...
- Consumer Discretionary Sector. Growth: 15.8% ...
- Communication Services Sector. Growth: 9.74% ...
- Materials Sector. Growth: 5.98% ...
- Consumer Staples Sector. Growth: 3.07% ...
- Utilities Sector. Growth: -0.6% ...
- Real Estate Sector.
Stock Sector 10-Year Performance vs. S&P 500.
|Sector||10-Year Return vs. S&P 500|
The S&P 500 could approach or exceed the 10,000 level by the early to mid-2030s. Many investors take it as a given that—since returns on the S&P 500 have been strong for 10-plus years—stocks are expensive and over-owned.Has Warren Buffett outperformed the S&P? ›
Buffett handily topped the S&P 500 for nearly 40 years after he took control in 1965 when Berkshire was much smaller and his stock-picking was phenomenal. It has gotten tougher over the past two decades, but Buffett and Vice Chairman Charlie Munger think Berkshire can outperform in the years ahead.Will S&P ever hit $5,000? ›
The chief investment strategist at Leuthold predicts the S&P 500 will hit 5,000 in the coming 12 months, a far more bullish call than any provided by the strategists Bloomberg regularly surveys.Why 95% of traders lose money? ›
Many traders don't follow their plan due to their emotions. When their trade starts going in a negative trajectory, people will place their stop-loss lower in hope that their trade will bounce back up. Traders need to know that it takes time to estimate trades before initiating them.Why do 99 percent traders lose money? ›
“The biggest reason active traders lose money is overtrading, the low brokerage doesn't help," Kamath said.
Can you consistently beat the S&P 500? ›
Yes, you may be able to beat the market, but with investment fees, taxes, and human emotion working against you, you're more likely to do so through luck than skill. If you can merely match the S&P 500, minus a small fee, you'll be doing better than most investors.How much would 100$ invested into S&P 500 30 years ago be worth today? ›
If you invested $100 in the S&P 500 at the beginning of 1930, you would have about $574,655.93 at the end of 2023, assuming you reinvested all dividends. This is a return on investment of 574,555.93%, or 9.75% per year.What if I invested $100 in S&P 500 in 1990? ›
S&P 500: $100 in 1990 → $2,391.06 in 2023
This is a return on investment of 2,291.06%, or 10.07% per year. This lump-sum investment beats inflation during this period for an inflation-adjusted return of about 935.37% cumulatively, or 7.32% per year.
S&P 500: $100 in 1980 → $11,106.63 in 2023
This lump-sum investment beats inflation during this period for an inflation-adjusted return of about 2,932.07% cumulatively, or 8.24% per year. If you used dollar-cost averaging (monthly) instead of a lump-sum investment, you'd have $9,552.94.
When most people think about average market returns, those are the commonly cited numbers that they expect to achieve. At an 8% rate of return, $100,000 would turn into $1,000,000 after 30 years. If you have 30 years and $100,000, then there's a good chance that the S&P 500 can make you a millionaire retiree.How aggressive should my 401k be at 40? ›
The conservative, risk-averse investor might be comfortable with a 60% stock and 40% bond allocation. A more aggressive investor in their 40s might be comfortable with an 80% stock allocation.Is the S&P 500 safe for retirement? ›
Key Points. S&P 500 ETFs are a relatively safe investment. However, they can still earn substantial returns over time. By investing consistently, it's possible to build a million-dollar portfolio.How many S&P 500 index funds should I own? ›
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification. But the number of ETFs is not what you should be looking at. Rather, you should consider the number of different sources of risk you are getting with those ETFs.Can I just put all my money in S&P 500? ›
The S&P 500 is a stock market index made up of about 500 publicly traded companies. You cannot directly invest in the index itself. You can buy individual stocks of companies in the S&P 500, or buy an S&P 500 index fund or ETF. Index funds typically carry less risk than individual stocks.What is the average return of the S&P 500 in the last 10 years? ›
Basic Info. S&P 500 10 Year Return is at 161.9%, compared to 162.1% last month and 221.7% last year. This is higher than the long term average of 112.3%.
What sectors are still undervalued? ›
By sector, communication services and real estate are the most undervalued sectors today, trading 30% and 22% below our fair values, respectively. Consumer defensive stocks, meanwhile, are about fairly valued.What is the biggest stock decline in 2023? ›
The decline of Pfizer, by far the worst-performing stock of 2023 with a market capitalization over $100 billion, comes after the company said it expected sales for its Covid-19 vaccine and oral treatment will slip 60% in 2023, and headline an onslaught for several big pharmaceutical companies, with peers Johnson & ...What sectors do not do well in a recession? ›
- A recession is “a significant decline in economic activity spread across the economy, lasting more than a few months.”
- Industries affected most include retail, restaurants, travel/tourism, leisure/hospitality, service purveyors, real estate, & manufacturing/warehouse.
Generally, the industries known to fare better during recessions are those that supply the population with essentials we cannot live without that. They include utilities, health care, consumer staples, and, in some pundits' opinions, maybe even technology.What sectors are hurt by rising interest rates? ›
Sectors that are also very vulnerable to the rising rates are broadcasting and media, technology, and telecommunications. Those sectors are very leveraged, and those levels of indebtedness, in combination with the rising interest rate environment, will continue to increase their cost of borrowing.What sectors perform well when interest rates rise? ›
The financial sector has historically been among the most sensitive to changes in interest rates. With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates.
- Healthcare Sector. The global healthcare sector may reach a valuation of $63.90 billion in 2023. ...
- Information Technology Sector. ...
- Real Estate Sector. ...
- FMCG (Fast-Moving Consumer Goods) Sector. ...
- Infrastructure Sector.
- Energy. Information. technology. Health care. Utilities.
- Real estate. Materials. Industrials. Communication. services.
- Consumer. staples. Consumer. discretionary. Financials.
14 recession-proof industries
- Health care. ...
- Food and beverage. ...
- Discount retail. ...
- Utilities. ...
- Federal government. ...
- Education. ...
- Law enforcement. ...
- DIY and repairs.
Energy, materials, industrials, consumer discretionary, financials and information technology are traditionally considered cyclical sectors, as stocks in these sectors have tended to be highly correlated to economic cycles.
What stocks to buy against inflation? ›
Meanwhile, these are the stocks that usually underperform during higher inflation periods:
- Mortgage providers.
- IT (Information Technology stocks)
- Growth stocks.
- Consumer discretionary businesses.
The fate of the S&P 500 index — used by investors as a barometer for the health of corporate America, and cited by presidents as a measure of their handling of the economy — often comes down to just two companies: Apple and Microsoft. The companies that make up the S&P 500, sized by share of market value.What is the best performing sector in the last 10 years? ›
The best performing Sector in the last 10 years is Information Technology, that granded a +19.15% annualized return. The worst is Energy, with a +4.34% annualized return in the last 10 years. The main S&P 500 Sectors can be easily replicated by ETFs.What industries are expected to thrive in 2023? ›
- Healthcare. ...
- Personal Care and Service. ...
- Travel, Leisure, and Hospitality. ...
- Commercial and Residential Construction. ...
- Manufacturing. ...
- Information Technology and Artificial Intelligence (AI) ...
- Financial Services. ...
- Human Resources.
- SPDR S&P 500 ETF Trust (SPY) ...
- iShares Core S&P 500 ETF (IVV) ...
- Schwab S&P 500 Index Fund (SWPPX) ...
- Shelton NASDAQ-100 Index Direct (NASDX) ...
- Invesco QQQ Trust ETF (QQQ) ...
- Vanguard Russell 2000 ETF (VTWO) ...
- Vanguard Total Stock Market ETF (VTI) ...
- SPDR Dow Jones Industrial Average ETF Trust (DIA)
- Energy. Looking at the visualization above, it's easy to see which sector dominated this year. ...
- Healthcare (Sort of) The healthcare sector was a mixed bag this year, but some winners did emerge. ...
- Big Aerospace and Defense Companies. ...
- Technology. ...
- Automakers. ...
- Real Estate.
|S&P 500 sector||Share “buy” ratings||Share “buy” ratings – June 30, 2020|
- Corebridge Financial, Inc. (NYSE:CRBG) Trailing Twelve Month P/E: 1.59. ...
- Navios Maritime Partners L.P. (NYSE:NMM) Trailing Twelve Month P/E: 1.51. ...
- Netcapital Inc. (NASDAQ:NCPL) ...
- Jiayin Group Inc. (NASDAQ:JFIN) ...
- Obsidian Energy Ltd. (NYSE:OBE)
The S&P 500 is a great core holding, however, it lacks several dimensions of an optimally diversified portfolio i.e. the sector, geographic, currency and cap size. While 38% of S&P 500 earnings come from outside of the U.S., that is not the same as owning a portfolio that has 38% international stocks.Is SPY enough diversification? ›
The SPDR S&P 500 ETF Trust (also known as SPY), which tracks the S&P 500 index, is a perfect example of a popular fund that allows for broad market exposure but offers limited diversification.
Do I need to diversify S&P 500 index fund? ›
Building a diversified portfolio
When building an investment portfolio from scratch, broad diversification should be the central goal. Instead of following the “only invest in the S&P 500” approach, diversify your portfolio across asset class, market, industry, market cap, and time.
That said, you shouldn't necessarily invest exclusively in the S&P 500. There are other indices, sectors, and groups of stocks you can invest in through mutual funds and ETFs, and there are some excellent individual stocks you can invest in.What is the 5 40 diversification rule? ›
No single asset can represent more than 10% of the fund's assets; holdings of more than 5% cannot in aggregate exceed 40% of the fund's assets. This is known as the "5/10/40" rule.How many stocks are sufficient for diversification? ›
The average diversified portfolio contains between 20 and 30 stocks. While there is no one-size-fits-all answer to this question, it is influenced by a variety of factors, including your investment horizon, risk tolerance, and current portfolio diversification.Can the S&P 500 make you a millionaire? ›
Key Points. With enough time and sufficient money invested, becoming a millionaire is very achievable. The S&P 500 has averaged annual growth of close to 10% over long periods. That kind of return is good enough to build solid wealth.Does Warren Buffett only invest in index funds? ›
Warren Buffett is a firm believer in index funds. In fact, in his 2013 letter to Berkshire Hathaway (NYSE: BRK. A) (NYSE: BRK.B) shareholders, he wrote that his will recommends that most of the cash that goes to his family be put in a low-cost S&P 500 index fund.Should you have multiple S&P 500 index funds? ›
You only need one S&P 500 ETF
You could be tempted to buy all three ETFs, but just one will do the trick. You won't get any additional diversification benefits (meaning the mix of various assets) because all three funds track the same 500 companies.
|Original Amount||Final Amount|
|Real Inflation Adjusted||$8,000||$242,565.28|
If you are purchasing an S&P 500 index fund:
If your index fund has no minimum (more common), then you can usually purchase in any dollar amount. If your index fund has a minimum (less common), then you have to purchase at least the minimum amount.
Regardless of where you invest, it's wise to keep a long-term outlook. The market could be shaky over the coming months or even years. But if you invest in an S&P 500 ETF and hold that investment for at least a couple of decades, you're almost guaranteed to make money.