To help our Investing Club members gain an understanding of the sectors of the economy I have referenced information from Investopedia and Alison Holmes has helped supply information from Google Finance. Below you will find an overview of the definition of what a sector is vs. what an industry is, as well as the breakdown of the various sectors of the economy.
The terms industry and sector are often used interchangeably to describe a group of companies that operate in the same segment of the economy or share a similar business type. Although the terms are commonly used interchangeably, they do, in fact, have slightly different meanings. The difference pertains to their scope; a sector refers to a large segment of the economy, while the term industry describes a more specific group of companies or businesses.A sector is one of a few general segments in the economy within which a large group of companies can be categorized. An economy can be broken down into about a dozen sectors, which can describe nearly all of the business activity in that economy. For example, the basic materials sector is the segment of the economy in which companies deal in the business of exploration, processing and selling the basic materials such as gold, silver or aluminum which are used by other sectors of the economy.
An industry, on the other hand, describes a much more specific grouping of companies with highly similar business activities. Essentially, industries are created by further breaking down sectors into more defined groupings. Each of the dozen or so sectors will have a varying number of industries, but it can be in the hundreds. For example, the financial sector can be broken down into industries such as asset management, life insurance and Northwest regional banks. The Northwest regional bank industry, which is part of the financial sector, will only contain companies that operate banks in the Northwestern states.
When breaking down the economy, the first groups are sectors which describe a general economic activity. Then all of the companies that fall into that sector are categorized further into industries where they are grouped only with companies with which they share very similar business activities.
Source: http://www.investopedia.com/ask/answers/05/industrysector.asp#ixzz3ntLExZWY
The sectors of the economy can be summarized as follows:
Energy
The terms industry and sector are often used interchangeably to describe a group of companies that operate in the same segment of the economy or share a similar business type. Although the terms are commonly used interchangeably, they do, in fact, have slightly different meanings. The difference pertains to their scope; a sector refers to a large segment of the economy, while the term industry describes a more specific group of companies or businesses.A sector is one of a few general segments in the economy within which a large group of companies can be categorized. An economy can be broken down into about a dozen sectors, which can describe nearly all of the business activity in that economy. For example, the basic materials sector is the segment of the economy in which companies deal in the business of exploration, processing and selling the basic materials such as gold, silver or aluminum which are used by other sectors of the economy.
An industry, on the other hand, describes a much more specific grouping of companies with highly similar business activities. Essentially, industries are created by further breaking down sectors into more defined groupings. Each of the dozen or so sectors will have a varying number of industries, but it can be in the hundreds. For example, the financial sector can be broken down into industries such as asset management, life insurance and Northwest regional banks. The Northwest regional bank industry, which is part of the financial sector, will only contain companies that operate banks in the Northwestern states.
When breaking down the economy, the first groups are sectors which describe a general economic activity. Then all of the companies that fall into that sector are categorized further into industries where they are grouped only with companies with which they share very similar business activities.
Source: http://www.investopedia.com/ask/answers/05/industrysector.asp#ixzz3ntLExZWY
The sectors of the economy can be summarized as follows:
Energy
- Stocks that relate to producing or supplying energy.
- Includes companies involved in the exploration and development of oil or gas reserves, oil and gas drilling, or integrated power firms.
- Performance in the sector is largely driven by the supply and demand for worldwide energy. Energy producers will do very well during times of high oil and gas prices, but will earn less when the value of energy drops.
- This sector is sensitive to political events, which historically have driven changes in the price of oil.
- Stocks that accounts for companies involved with the discovery, development and processing of raw materials.
- Includes the mining and refining of metals, chemical producers and forestry products.
- Sensitive to changes in the business cycle. Because the sector supplies materials for construction, it depends on a strong economy.
- This sector is also sensitive to supply and demand fluctuations because the price of raw materials, such as gold or other metals, is largely demand driven.
- Stocks that relate to producing goods used in construction and manufacturing.
- This sector includes companies involved with aerospace and defense, industrial machinery, tools, lumber production, construction, cement and metal fabrication.
- Performance in the industrial goods sector is largely driven by supply and demand for building construction - residential, commercial and industrial - as well as the demand for manufactured products.
- When the economy contracts and consumers save more and spend less, activity in this sector drops because companies will postpone expansion and produce fewer goods.
- Stocks that rely heavily on the business cycle and economic conditions.
- Include industries such as automotive, housing, entertainment and retail.
- The performance of consumer cyclicals is highly related to the state of the economy.
- They represent goods and services that are not considered necessities, but luxuries. During contractions or recessions, people have less disposable income to spend on consumer cyclicals.
- Consists of companies engaged in fishing and farming operations; the processing and production of food, beverages and tobacco; manufacturers of household and personal products; and providers of personal services.
- Stocks containing firms that provide financial services to commercial and retail customers.
- Includes banks, investment funds, insurance companies and real estate.
- They perform best in low interest rate environments. A large portion of this sector generates revenue from mortgages and loans, which gain value as interest rates drop.
- Improved economic conditions usually lead to more capital projects and increased personal investing. New projects require financing, which usually leads to a larger number of loans.
- Stocks relating to medical and healthcare goods or services.
- Includes hospital management firms, health maintenance organizations (HMOs), biotechnology and a variety of medical products.
- Stocks in the healthcare sector are often considered to be defensive because the products and services are essential. Even during economic downturns, people will still require medical aid and medicine to overcome illness.
- Stocks relating to the research, development and/or distribution of technologically based goods and services.
- Contains businesses revolving around the manufacturing of electronics, creation of software, computers or products and services relating to information technology.
- Consumer goods like personal computers, stereos and televisions are continually improved and upgraded, offering the latest technology to all users.
- Comprises companies that make communication possible on a global scale whether through the phone or Internet.
- These companies created the infrastructure that allows data to be sent anywhere in the world. The largest companies in the sector are wireless operators, satellite companies, cable companies and Internet service providers.
- Stocks for utilities such as gas and power.
- The utilities sector contains companies such as electric, gas and water firms and integrated providers.
- Utilities require significant infrastructure, these firms often carry large amounts of debt.
- The utilities sector performs best when interest rates are falling or remain low.