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What is a 'Sector'

A sector is an area of the economy in which businesses share the same or a related product or service. It can also be thought of as an industry or market that shares common operating characteristics. Dividing an economy into different pieces allows for more in-depth analysis of the economy as a whole.

BREAKING DOWN 'Sector'

Almost all economies are comprised of four, high-level sectors, which are then each made up of smaller sectors. Of the large sectors within an economy, the first is called the primary sector and involves companies that participate the extraction and harvesting of natural products from the earth, such as agriculture, mining and forestry. The secondary sector consists of processing, manufacturing and construction companies. The tertiary sector is comprised of companies that provide services, such as retail sales, entertainment and financial organizations. The quaternary sector is made up of companies in the intellectual pursuits, such as educational businesses.

Investors use sectors to place stocks and other investments into categories such as technology, healthcare, energy, utilities and telecommunications. Each sector has unique characteristics and a different risk profile that attracts a specific type of investor. It is, therefore, common for analysts and other investment professionals to specialize in certain sectors. For example, at a large research firm, an analyst may cover only pharmaceutical companies. Additionally, investment funds often specialize in a particular economic sector, a practice known as sector investing. The oil and gas sector is an example of a portion of an economy that attracts specialized investment funds.

An Example of How Investors View Sectors

Almost all serious investors look at sector performance at least weekly. For example, many investors conducted sector analysis on Friday, July 1, 2016, for the investment week of June 27, 2016 to July 1, 2016. As of that Friday, shares of companies in the energy sector, or primary sector, outperformed other sectors by 1.2%. The sector's growth was buoyed specifically by Transocean Ltd. and Chesapeake Energy Corp., both of which had weekly gains over 6%.

The next highest performing sector over the time period being analyzed was the services sector, which had a weekly gain of 0.6%. Netflix, Inc. and Best Buy, Inc. were the best-performing companies within the sector, with gains of 5.0% and 2.9%, respectively. The healthcare sector also saw gains of 0.6% for the week, followed by the consumer products sector at 0.4% and the industrial sector, which grew by 0.2% for the week. The materials, utilities, technology & communications and financial sectors all saw a decline in performance, ending the week negatively.

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