What is a Sector?
Stock technical analysis is based on comparison, it is important to find common ground. A good way to look for companies with similar attributes is to search a sector. “Stock sectors” classifies stocks according to the type of product or service a company provides. From that classification, traders can compare and contrast which companies are best in the certain industries and in certain economic climates.
Stock Market cycles are patterns of expansion and contraction in the economy as the nation moves from recessionary periods to recovery and back. Cycles are conditions that repeat themselves over and over again and they have predictive value. Certain industries behave in certain fashions throughout this constant cycling movement. Sectors divisions reflect this movement.
The most commonly used sector classification design divides the market down into eleven different stock sectors. Two of these sectors are generally regarded as “non-cyclical” (otherwise known as defensive) and the other nine are referred to as “cyclical”. For investors and traders alike, these differences can give you an edge in different market environments.
Cyclical and non-cyclical refer to how highly correlated a stock share price is to changes in economic conditions. Non-cyclical stocks usually outperform the market when economic growth slows, while cyclical companies are highly correlated to the current direction of the economy.
The non-cyclical stocks, also called defensive, experience profit regardless of economic gyrations because they produce or distribute consumer staples, goods and services the public will not go without, energy and food. Cyclical stocks, on the other hand, are geared toward luxury goods and services, depending on a strong economy spurring spending by the consumer.