Stock market Sectors are classified by the type of business.

The purpose of dividing the stock market by stock market sectors is to keep similar industries together so that comparison of stocks are more convenient.

Most stock analysis or reviews are usually done on the basis of how a certain sector is doing.

The stock market is divided into 11 different type of sectors. The sectors are broadly divided into Defensive and Cyclical sectors.

Defensive

Stocks of companies which deal in essentials which are used by the population like energy, food or consumer goods are kept in this sector. They are usually least affected by vagaries of the market. They offer protection in a falling market and gives stability to the market. Alternatively the Defensive stocks also do not climb rapidly because the wants of the people for a particular commodity increases slowly. Defensive stocks are managed by well established houses who have been in business for many decades. Therefore they act as a buffer and help to cushion the fall of any market.

Cyclical stocks

All the remaining industries are together classified as cyclical stocks. These stocks are not immune to the market forces and are highly volatile which sends the value up or down. therefore one can see one type of stock rising while another stock going down. Given below are the nine different sectors which come under cyclical stocks -

• Basic Materials
• Capital Goods
• Communications
• Consumer Cyclical
• Energy
• Financial
• Health Care
• Technology
• Transportation

Most of the business which in the cyclical stocks are self explanatory. The stocks of these industries are not insulated from the market forces and can fluctuate to a varying degree. We can take an example to understand this better. Cement comes under the head Basic materials. Suppose the market forces at work leads to a fall in interest rates for loans. There will be a boom in the Housing sector and it can lead to cement companies stock rising. In the same way an increase in the interest rates of loans will act as a damper to the housing sector leading to a fall in cement companies stocks.

Stock market Sectors are very helpful in sorting and comparing stocks of a particular sector.

This is only one type of Stock market Sectors classification. Different agencies can use slightly different classification. Therefore it is imperative for any investor to look carefully at different classifications of  Stock market Sectors before investing. This is extremely beneficial since a review of the stocks of a particular sector will help the investor decide upon which sector stocks to buy and which one to sell.

It also helps to make a critical analysis of the working of the stock market. If the other stocks are up by 11 % and your stock is down by 8 % or also vice verse with your stocks doing better as compared to other stocks- it could be that a stock has been listed wrongly due to a new classification. One would never want to shoot in the dark and  Stock market Sectors gives you a basis on which to base your evaluation on how well a particular sector is faring in the market.