What Is a Market Sector?
In economics and finance, the market sector refers to a segment of the economy. It is generally a larger phrase than industry, which is a group of firms that acquire and sell goods and services that are so comparable that they are in direct rivalry with one another.
Analysts split the stock market into market sectors so that shares of competing firms are placed alongside one another.
A market sector is a grouping of companies that operate in the same space. The Global Industry Classification Standard (GICS) is the most common way of classifying market sectors.
These sectors are important for investors to understand because companies within the same industry tend to be affected by similar economic conditions.
Global Industry Classification Standard
In 1999, MSCI and Standard & Poor's created the GICS sector taxonomy (Global Industry Classification Standard). GICS is widely utilized in the worldwide financial community today.
There are ten sectors in the GICS: energy, materials, industrials, consumer discretionary, consumer staples, health care, financials, information technology, telecommunication services, and utilities.
S&P Dow Jones Indices and MSCI revise the categorization criteria regularly. Various sub-industries, industries, or industrial groupings have been added, deleted, or redefined due to several changes.
There have been two sector-level adjustments since 1999:
- Except for mortgage REITs, the real estate industry group was transferred out of the financials sector and into a newly constituted real estate sector in 2016.
- In 2018, the telecommunications services industry was renamed communication services which now includes media and entertainment companies and interactive media and services companies.
Market Sector vs Market Segment
It's important to distinguish the market sector from the market segment.
The market sector is a broad category for identifying the types of markets the organization targets.
On the other hand, market segmentation divides a market into distinct groups of customers with similar characteristics, needs, and preferences.
Their characteristics cause them to engage with one another. In turn, this may impact the route enterprises in the area take.
For example, the energy sector could be divided into two segments: renewable and non-renewable.
Four Sectors of Economy
The economy has four sectors: primary, secondary, tertiary, and quaternary.
Primary
Agriculture, mining, and forestry are the primary sectors—extracting raw resources from the soil and gathering natural goods.
Secondary
Manufacturing, building, and processing are examples of secondary industries.
Tertiary
The tertiary sector includes retail sales, financial services, and entertainment.
Quaternary
A sector of the economy is based on helpful knowledge for some commercial activity, often the provision of services.
Data collecting, dissemination, technology, research and development, vocational education, and corporate consultancy are all examples of this.
Categories of Market Sectors
Designers must accurately recognize the demands of the target market and audience. These are divided into two categories:
Geographical
Market sectors can be classified by geography. It concentrates on the values, culture, and characteristics of buyers in that region and purchasing power.
Marketers must also know legal, physical, or psychological barriers to entry when targeting a geographical market sector.
Client-Based
Client-based market sectors are defined by the type of customers they serve. It focuses on consumers, industry, government, and commerce.
Target markets can also be classified by clientele type. This includes dividing the market into groups based on lifestyle, age, gender, occupation, and income level.
Investing In Market Sectors
There are several ways to include specialized sector exposure in your portfolio. You may choose a sector and buy specific stocks that reflect one or more of the industries it covers.
Alternatively, you might invest in a sector mutual fund or exchange-traded funds, such as utilities or technology funds.
When determining which sectors to invest in, keep the fundamentals in mind, such as market capitalization and past performance. When analyzing results, you should also consider risk.
From there, you may assess how probable a market sector is to assist you in adequately diversifying your portfolio and achieving your financial objectives.
For example, how you approach investing will alter depending on whether you seek growth or long-term stability.
Final Thoughts
A market sector is a group of enterprises that provide linked products and services. Market sectors can be classified according to location or clientele type.
When investing in a market sector, it's important to keep the fundamentals in mind, such as market capitalization and past performance. You should also consider risk when analyzing results.
FAQs
1. What is a market sector?
A market sector is a group of companies that offer related products and services. Market sectors can be categorized by geography or clientele type.
2. What are the four sectors of the economy?
The four sectors of the economy are primary, secondary, tertiary, and quaternary.
3. What are the categories of market sectors?
The categories of market sectors are geographical and client-based.
4. How do you invest in a market sector?
You may invest in a sector by buying specific stocks that reflect one or more of the industries it covers. Alternatively, you might invest in a sector mutual fund or exchange-traded fund.
5. What is the difference between the market sector and the market segment?
Market segments are subsets of market sectors. Market segments are created when market sectors are divided into groups based on lifestyle, age, gender, occupation, and income level.
