The S&P sectors represent the different categories that the index uses to sort the companies it follows. There are 11 sectors that make up the S&P 500, and they include health care, technology, energy, real estate, and more.
Understanding how the S&P sectors work and break down further can help both institutional and retail investors manage risk through different economic cycles by allocating their portfolio across multiple sectors. For example, cyclical stocks and cyclical sectors tend to fare well when the economy booms. During a recession, however, defensive stocks may outperform them. However, it’s also possible for all 11 sectors to trend in the same direction.
What Is the S&P 500
“S&P” refers to Standard & Poor, and the S&P 500 index tracks the movements of 500 large-cap U.S. companies. A number of mutual funds and exchange-traded funds (ETFs) use this index as a benchmark.
Many investors use the S&P 500 as a stand-in for the entire market when it comes to investing, particularly index investing. But again, the S&P 500 can be broken down into specific sectors in which companies of particular types are concentrated — allowing investors to get more granular, if they wish, with their investment strategies.
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Examining the 11 Sectors of the S&P
The Global Industry Classification System (GICS) has 11 stock market sectors in its taxonomy. It further breaks down these 11 sectors into 24 industry groups, 74 industries, and 163 sub-industries. Here’s a look at the S&P Sector list, by size:
1. Technology
Technology is the largest sector of the S&P 500. This sector includes companies involved in the development, manufacturing, or distribution of tech-related products and services. For example, companies in the technology sector may produce computer software programs or electronics hardware, or research and develop new technologies.
Tech stock investments are typically cyclical, in that they usually perform better during economic expansions. The technology sector includes a number of growth stocks, which are companies that reinvest most or all of their profits in expansion versus paying dividends. Examples of some popular tech stocks include:
• Facebook (META)
• Apple (AAPL)
• Microsoft (MSFT)
• Alphabet (GOOG)
• IBM (IBM)
2. Financials
The financials sector covers a variety of industries, including banking and investing. Banks, credit unions, mortgage companies, wealth management firms, credit card companies and insurance companies are all part of the financial sector.
Financial services companies are usually categorized as cyclical. For example, a credit card issuer’s profit margins may shrink during a recession if unemployment rises and people spend less or can not keep up with credit card payments. But this can be subjective, as mortgage companies may benefit during recessionary periods if lower interest rates spur home-buying activity.
Some of the biggest names in the financial sector include:
• Visa (V)
• JPMorgan Chase (JPM)
• Bank of America (BAC)
• PayPal Holdings (PYPL)
• Mastercard (MA)
3. Health Care
The next largest of the S&P sectors is health care. This sector includes pharmaceutical companies, companies that produce or distribute medical equipment, and supplies and companies that conduct health care-related research.
The health care sector also includes alternative health companies, including companies that use cannabis as a part of their medical research and product development.
Recommended: Cannabis Investing 101
More traditional examples of healthcare sector companies include:
• CVS (CVS)
• Johnson & Johnson (JNJ)
• UnitedHealth Group (UNH)
• Thermo Fisher Scientific (TMO)
• Regeneron (REGN)
Health care stocks are typically non-cyclical, as demand for these products and services usually doesn’t hinge on economic movements.
4. Consumer Discretionary
The consumer discretionary sector is a largely cyclical sector that includes companies in the hospitality and entertainment sectors, as well as retailers.
Examples of stocks that fit into the consumer discretionary sector are:
• Starbucks (SBUX)
• AMC (AMC)
• Best Buy (BBY)
• Home Depot (HD)
• Nike (NKE)
Generally, these companies represent things consumers may spend more money on in a thriving economy and cut back on during a downturn. That’s why they’re considered cyclical in nature.
5. Communications Services
This sector spans companies that provide communications services of some kind. That can include landline phone services, cellular phone services, or internet services. Communications also includes companies responsible for producing movies and television shows.
The communications sector can be hard to pin down in terms of whether it’s cyclical or defensive. In a down economy, for example, people may continue to spend money on phone and internet services but cut back on streaming services. So there’s an argument to be made that the communication sector is a little of both.
Companies that belong to this sector include:
• Comcast (CMCSA)
• AT&T (T)
• Dish Network (DISH)
• Discovery Communications (WBD)
• Activision Blizzard (ATVI)
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6. Industrials
The industrial sector covers a broad range of industries, including those in the manufacturing and transportation sectors. For example:
• Honeywell (HON)
• 3M (MMM)
• Stanley Black & Decker (SWK)
• Delta Airlines (DAL)
• Boeing (BA)
Industrials are often considered to be cyclical stocks, again because of how they react to changes in supply and demand. The airline industry, for example, saw a steep decline in 2020 as air travel was curtailed due to the coronavirus pandemic.
7. Consumer Staples
Consumer staples stocks represent things consumers regularly spend money on. That includes groceries, household products and personal hygiene products. The consumer staples sector is also a defensive sector because even when the economy hits a rough spot, consumers will continue spending money on these things.
From an investment perspective, consumer staples stocks may not yield the same return profile as other sectors. But they may provide some stability in a portfolio when the market gets shaky.
Companies that are recognized as some of the top consumer staples stocks include:
• General Mills (GIS)
• Coca-Cola (KO)
• Procter & Gamble (PG)
• Conagra Brands (CAG)
• Costco Wholesale (COST)
8. Energy
The energy sector includes companies that participate in the production and/or distribution of energy. That includes the oil and gas industry as well as companies connected to the development or distribution of renewable energy sources.
Energy stock investments can be more sensitive to economic movements and supply-demand trends compared to other sectors.
Some of the biggest energy sector companies include:
• Exxon Mobil (XOM)
• Royal Dutch Shell (SHEL)
• Chevron (CVX)
• Conocophillips (COP)
• Halliburton (HAL)
9. Real Estate
This sector includes real estate investment trusts (REITs) as well as realtors, developers and property management companies. REITs invest in income-producing properties and may pay out as much as 90% of profits out to investors as dividends.
Investing in real estate can be a defensive move as this sector is largely uncorrelated with stocks. So if stock prices fall, for example, investors may not see a correlating drop in real estate investments as property generally tends to appreciate over time.
Examples of real estate companies in the S&P 500 include:
• Digital Realty (DLR)
• American Tower (AMT)
• Prologis (PLD)
• Simon Property Group (SPG)
• Boston Properties (BXP)
10. Materials
The materials sector includes companies connected to the sourcing, processing or distribution of raw materials. That includes things like lumber, concrete, glass, and other building materials.
Materials is one of the cyclical S&P sectors, as it can be driven largely by supply and demand. During a housing boom, for example, the materials sector may benefit from increased demand for lumber, plywood and other construction materials.
Material stocks in the S&P 500 include:
• Dupont (DD)
• Celanese (CE)
• Sherwin Williams (SHW)
• Air Products & Chemicals (APD)
• Eastman Chemical (EMN)
11. Utilities
Utilities represent one of the core defensive S&P sectors. This sector includes companies that provide gas, electricity, water, and other utilities to households, businesses, farms, and other entities.
Since these are essentials that people typically can’t do without, they’re generally less sensitive to major shifts in the economic cycle. They also often pay dividends to their investors.
Examples of utilities stocks include:
• AES (AES)
• UGI (UGI)
• CenterPoint Energy (CNP)
• Duke Energy (DUK)
• Dominion Energy (D)
Recommended: How to Invest in Utilities
How Are the Sectors of the S&P 500 Weighted?
Given that the S&P 500 is composed mostly of the largest companies, its weighting is relative to the size of those companies and their respective industries. As such, that’s why technology, health care, and financials are relatively large compared to other sectors.
It’s also important to understand that things change over time — in terms of company and industry size and influence on the overall economy. Accordingly, the index itself changes, and weighting of specific sectors and companies changes as well.
Which Is the Largest S&P 500 Sector?
As discussed, technology, or information and technology, is currently the largest sector in the S&P 500. That’s in large part due to the tech sector’s growth over the past couple of decades, and certain companies within the sector becoming larger with massive market caps — companies such as Apple, Microsoft, Alphabet, Meta, Netflix, and others.
Which Is the Smallest S&P 500 Sector?
As of March 2024, utilities is the smallest S&P 500 sector, comprising a little more than 2% of the overall index. But the materials and real estate sectors are not much bigger.
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What Can You Do As an Investor With This Information?
Investors can tap their knowledge of the S&P 500 sectors to help inform their investing strategy and plan. As discussed, while some sectors tend to be a bit more volatile, investors may look at specific and strategic allocations in other sectors to help “smooth” things out during times of volatility in the market.
Further, sector investing can help investors diversify their portfolios, or find additional opportunities to invest.
The Takeaway
Knowing what the S&P sectors are and which types of industries or sub-industries they represent can help investors achieve diversification through different types of investments. While some financial experts liken the sectors to a pie, with several individual slices, it may be more helpful to think of them as a buffet from which investors can pick and choose.
You can either purchase stocks within or across sectors, or look for funds that can provide that diversification for you. It’ll all depend on your overall financial plan and investment strategy. If you need help honing that in, it may be beneficial to speak with a financial professional.
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FAQ
What are the S&P 500 sector weights?
As of March 2024, information technology is the largest sector in the S&P 500, comprising nearly 30% of the overall index. It’s followed by financials at 13%, health care at 12.5%, and consumer discretionary at 10.6%.
What is the sector breakdown of the S&P 500?
The eleven sectors of the S&P 500 are information technology, financials, health care, consumer discretionary, communication services, industrials, consumer staples, energy, real estate, materials, and utilities.
What is the smallest sector of the S&P 500?
As of March 2024, utilities is the smallest sector of the S&P 500, comprising 2.1% of the overall index.
Photo credit: iStock/izusek
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