Understanding The Ten Sectors That Comprise The Standard And Poor’s 500 Index (S&P 500)

by Hank Coleman

There are ten sectors of the economy that are represented in the Standard and Poor’s 500 index (S&P 500). The S&P 500 is the most widely accepted metric and index that represents the overall economy. It is the most watched indicator of the stock market and the US economy. While the Dow Jones Industrial Average receives a lot of attention from the television news pundits and in the newspapers, it is not a good barometer of the economy’s overall health. In fact, the Dow Jones average only includes thirty large US based corporations. Like the name implies, the S&P 500 includes the five hundred largest companies in American from across a wide range of industries, ten different sectors in fact.

The sectors of the S&P 500 index are consumer discretionary, consumer staples, energy, financials, healthcare, industrials, information technology, materials, telecommunications services, and utilities.

Consumer Discretionary. The consumer discretionary sector includes industries such as automotive, housing, entertainment, and retail. The category can also be divided into durable and non-durable sectors. Durable discretionary consumer goods include physical goods such as hardware or vehicles, and non-durables represent items like movies or hotel services.

Consumer Staples. Consumer staples are the products from companies that sell the most common consumer products such as food, beverages, housewares, clothing, tobacco, and prescription drugs.

Energy. This sector is self-explanatory. Anything that has to do with energy production, energy exploration, natural gas, oil, fuel, etc. is in this category. It is comprised of stocks that relate to producing or supplying energy. This sector includes companies involved in the exploration and development of oil or gas reserves, oil and gas drilling, or integrated power firms.

Financials. Financials is another self-explanatory sector. It is stocks containing firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies and real estate.

Healthcare. Medical and healthcare goods or services; The healthcare sector includes hospital management firms, health maintenance organizations (HMOs), biotech firms, and other companies that produce medical products.

Industrials. This sector generally manufactures finished goods suitable for use by other businesses, for export, or sale to domestic and international consumers.

Information Technology. Stocks relating to the research, development and/or distribution of technologically based goods and services. This sector contains businesses revolving around the manufacturing of electronics, creation of software, computers or products and services relating to information technology.

Materials. This sector is category of stocks that accounts for companies involved with the discovery, development and processing of raw materials. The basic materials sector includes the mining and refining of metals, chemical producers and forestry products.

Telecommunication Services. The telecom sector is for companies that produce products and services for the transmission of data and voice.

Utilities. The utilities sector contains companies such as electric, gas and water firms and integrated providers.

The S&P 500 has been widely regarded as the best single gauge of the large cap U.S. equities market since the index was first published in 1957. The index has over $3.5 trillion benchmarked, with index assets comprising approximately $915 billion of this total. The index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities. The Global Industry Classification Standard (GICS) was developed by Standard & Poor’s and MSCI Barra in 1999 in order to provide one complete, consistent set of global sector and industry definitions. GICS enables market participants to identify and analyze groups of companies by breaking down the global market into four levels of detail: 10 sectors, 24 industry groups, 68 industries, and 154 sub-industries. Companies are classified primarily based on revenues, earnings, and market perception.

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{ 1 comment }

Tom Prosapio January 5, 2015 at 3:43 pm

In what sector does “Transportation” such as rail, trucking, pipe lines, shipping, belong? This industry or sector seems to be missing in your definitions of the 10 sectors.

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