Stock Market Sectors- How Securities Are Classified

by mrcd@sbcglobal.net

Stock Market Sectors- How Securities Are Classified

The stock market invests in different securities derived from different sectors of the economy. Securities from any given sector are classified with the aim of bringing companies in the same industry together for investment purposes. Once the companies have been grouped like this, they are referred to as sectors. The classification makes it easier for investors to make a comparison on the performance of the securities offered by different companies.

In the United States, the criteria used for the classification of the stock market sectors has led to 11 different categories of securities that one can invest in. The 11 categories are sub divided into two forms; defensive and cyclical. The defensive stocks are focused more on utilities and other consumer products that are fast moving and always on demand. One disadvantage with them is that they do not offer a promise to climb the ladder in terms of value because, people do not increase the demand for these products on a daily basis.

Cyclical stocks on the other hand cover other services and products in the market, which seem to respond to changes in the market conditions. However, they do not all respond in the same way to changes in the market. The nine stock market sectors that are classified under the cyclical category are energy, capital goods, communications, basic materials, technology, healthcare, transportation, financials and consumer cyclical.

Stock market sectors have made it easy for investors to choose what they want with much ease. They have also made comparison of securities easy and efficient. In addition, an investor is able to find explanations for any loopholes that there may be. For example, if a certain stock has improved with about 5% and the sector he has invested in is going down by a similar percentage, he should be able to find out why.

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