US Stock Market Sectors
U.S. Energy vs S&P 500 Ratio
Chart showing the U.S. Energy to S&P 500 ratio (XLE/SPY) over time.U.S. Basic Materials vs S&P 500 Ratio
Chart showing the U.S. Basic Materials to S&P 500 ratio (XLB/SPY) over time.U.S. Industrials vs S&P 500 Ratio
Chart showing the U.S. Industrials to S&P 500 ratio (XLI/SPY) over time.U.S. Utilities vs S&P 500 Ratio
Chart showing the U.S. Utilities to S&P 500 ratio (XLU/SPY) over time.U.S. Health Care vs S&P 500 Ratio
Chart showing the U.S. Health Care to S&P 500 ratio (XLV/SPY) over time.U.S. Financials vs S&P 500 Ratio
Chart showing the U.S. Financials to S&P 500 ratio (XLF/SPY) over time.U.S. Consumer Discretionary vs S&P 500 Ratio
Chart showing the U.S. Consumer Discretionary to S&P 500 ratio (XLY/SPY) over time.U.S. Consumer Staples vs S&P 500 Ratio
Chart showing the U.S. Consumer Staples to S&P 500 ratio (XLP/SPY) over time.U.S. Technology vs S&P 500 Ratio
Chart showing the U.S. Technology to S&P 500 ratio (XLK/SPY) over time.U.S. Communication Services vs S&P 500 Ratio
Chart showing the U.S. Communication Services to S&P 500 ratio (XLC/SPY) over time.U.S. Real Estate vs S&P 500 Ratio
Chart showing the U.S. Real Estate to S&P 500 ratio (XLRE/SPY) over time.Interpretation
The charts above display the relative strength of each US stock market sector, a key concept in investing and technical analysis. This strength is assessed by comparing the sector's price performance against the S&P 500, a widely recognized benchmark index. A rising ratio in these charts signifies that a sector is outperforming the market, whereas a declining ratio indicates underperformance. There are 11 major sectors identified by the Global Industry Classification Standard (GICS), and each major public company falls into one of these categories. Understanding relative strength is particularly beneficial for executing sector rotation strategies. Such strategies involve identifying sectors with robust relative strength and strategically investing in them. By doing so, investors can take advantage of the positive momentum in these sectors, potentially enhancing their investment portfolio's performance. This is closely related to the concept of cyclical vs. defensive sector performance.
Further Information
- TradingView Chart: Technology Sector: Relative Strength
- Fool.com: Stock Market Sectors
- Corporate Finance Institute: What are the S&P Sectors?
- Investopedia: What is relative strength?
- Wikipedia: Global Industry Classification Standard (GICS)
- VisualCapitalist: S&P 500 Breakdown by Sectors
- LongtermTrends: Stocks vs. Gold and Silver
US Stock Market Sectors Overview
Interpretation
The chart above gives a different view of the same data from the ratios above. Presented below are brief sector descriptions along with some example companies.
- Energy Sector: Companies involved in the exploration, production, refining, and distribution of oil, gas, and other energy sources. Example companies: Exxon Mobil, Chevron, ConocoPhillips.
- Materials Sector: Companies involved in extracting and processing raw materials, including metals, chemicals, and construction materials foundational to manufacturing and construction industries. Example companies: Linde PLC, Sherwin-Williams, Freeport-McMoRan.
- Industrials Sector: Companies involved in manufacturing, construction, transportation, and industrial services. Example companies: Caterpillar, Union Pacific, Boeing, General Electric.
- Utilities Sector: Companies providing essential services like electricity, gas, and water. Example companies: NextEra Energy, Southern, Duke Energy.
- Healthcare Sector: Companies involved in pharmaceuticals, medical equipment, and healthcare services. Example companies: UnitedHealth Group, Eli Lilly, Johnson & Johnson, Merck.
- Financials Sector: Companies providing banking, insurance, and asset management services. Example companies: Berkshire Hathaway, JPMorgan Chase, Visa, Mastercard, Bank of America, Wells Fargo.
- Consumer Discretionary Sector: Companies producing non-essential goods and services that reflect consumer confidence, including retail, automobiles, and leisure. Example companies: Amazon, Tesla, Home Depot, McDonald's, Nike.
- Consumer Staples Sector: Companies producing and distributing essential consumer products like food, beverages, and household items. Example companies: Procter & Gamble, Costco, PepsiCo, Coca-Cola, Walmart.
- Information Technology Sector: Companies involved in technology development, software, hardware, and IT services. Example companies: Microsoft, Apple, Broadcom, Nvidia, Adobe.
- Communication Services Sector: Companies involved in telecommunications and media. Example companies: Meta, Alphabet, Netflix, T-Mobile, Electronic Arts.
- Real Estate Sector: Companies involved in real estate development, management, and investment. Example companies: Prologis, American Tower, Equinix, Crown Castle.
Correlation Heat Map for US Stock Market Sectors
Interpretation
This heatmap shows how different sectors of the US stock market — like Technology, Health Care, and Energy — move in relation to each other. Red squares indicate a positive correlation (sectors moving together), while blue shows a negative correlation. As expected, most sectors are positively correlated, as they are all part of the broader US economy.
Understanding these relationships is useful for sector rotation and diversification. Sectors with lower correlations, such as Utilities or Energy, can help balance a portfolio that is heavily weighted in more cyclical areas like Technology or Financials. This is a domestic application of Ray Dalio's principle of using uncorrelated assets to reduce risk.
To create this chart, weekly log-returns are calculated for each sector index, and the Pearson correlation is computed for every pair. The heatmap is then organized using hierarchical clustering to group sectors with the most similar performance, revealing the underlying structure of the US market.
Correlation Spanning Tree for US Stock Market Sectors
Interpretation
The Minimum Spanning Tree (MST) simplifies the correlation matrix by showing only the strongest connections between sectors. If two sectors are linked, they have a strong positive correlation and tend to move in tandem. This helps identify clusters of related assets and is useful for portfolio diversification.
The tree is constructed by converting the correlations into distances and then finding the set of connections that links all sectors with the minimum total distance. As noted by Marti, Gautier, et al. (2017), the optimal Markowitz portfolio is often found at the tree's outskirts, and the tree tends to shrink during a financial crisis.
Data Sources
- Yahoo: SPDR S&P 500 ETF Trust (SPY)
- Yahoo: Energy Select Sector SPDR Fund (XLE)
- Yahoo: Materials Select Sector SPDR Fund (XLB)
- Yahoo: Industrial Select Sector SPDR Fund (XLI)
- Yahoo: Utilities Select Sector SPDR Fund (XLU)
- Yahoo: Health Care Select Sector SPDR Fund (XLV)
- Yahoo: Financial Select Sector SPDR Fund (XLF)
- Yahoo: Consumer Discretionary Select Sector SPDR Fund (XLY)
- Yahoo: Consumer Staples Select Sector SPDR Fund (XLP)
- Yahoo: Technology Select Sector SPDR Fund (XLK)
- Yahoo: Communication Services Select Sector SPDR Fund (XLC)
- Yahoo: The Real Estate Select Sector SPDR Fund (XLRE)