The sectors of the S&P 500 index are 11 distinct groups of companies that operate in similar industries or sectors. Each sector has its own index and represents a particular portion of the overall market based on their respective size and weight in the S&P 500 index.
The 11 sectors are: Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Real Estate and Utilities.
Investors can invest in specific sectors, to build a diversified portfolio. It's advaisable to check whether a sector is particularly expensive, by looking at its P/E.
Furthermore, you can check if a stock is undervalued compared to its sector, by comparing its P/E with the sector's one.
| P/E Evaluation | Historical P/E Average | P/E Deviation vs Avg | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| S&P 500 Sector | Trend | P/E▾ | 5 Years | 10 Years | 20 Years | 5 Years | 10 Years | 20 Years | 5 Years | 10 Years | 20 Years | |||
| Information Technology | XLK | 38.12 |
Expensive
|
Expensive
|
Expensive
|
28.31 | 22.23 | 18.25 |
+2.97 σ
|
+3.06 σ
|
+4.75 σ
|
20 Dec | ||
| Real Estate | XLRE | 35.99 |
Fair
|
Fair
|
-
|
39.40 | 38.07 | - |
-0.56 σ
|
-0.56 σ
|
-
|
20 Dec | ||
| Health Care | XLV | 32.71 |
Expensive
|
Expensive
|
Expensive
|
21.30 | 19.77 | 17.38 |
+2.83 σ
|
+7.86 σ
|
+6.47 σ
|
20 Dec | ||
| Consumer Discretionary | XLY | 27.85 |
Fair
|
Overvalued
|
Expensive
|
27.56 | 22.90 | 19.11 |
+0.09 σ
|
+1.28 σ
|
+2.57 σ
|
20 Dec | ||
|
|
S&P 500 Index | SPY | 27.34 |
Expensive
|
Expensive
|
Expensive
|
20.99 | 18.40 | 15.83 |
+2.92 σ
|
+4.07 σ
|
+5.12 σ
|
20 Dec | |
| Industrials | XLI | 26.75 |
Expensive
|
Expensive
|
Expensive
|
21.38 | 18.52 | 16.36 |
+2.30 σ
|
+3.14 σ
|
+5.04 σ
|
20 Dec | ||
| Materials | XLB | 24.27 |
Expensive
|
Expensive
|
Expensive
|
18.54 | 17.15 | 15.54 |
+2.27 σ
|
+4.23 σ
|
+4.78 σ
|
20 Dec | ||
| Consumer Staples | XLP | 23.63 |
Overvalued
|
Expensive
|
Expensive
|
21.64 | 20.20 | 17.89 |
+1.21 σ
|
+2.57 σ
|
+2.86 σ
|
20 Dec | ||
| Utilities | XLU | 21.42 |
Expensive
|
Expensive
|
Expensive
|
19.44 | 18.18 | 16.17 |
+2.03 σ
|
+2.65 σ
|
+2.81 σ
|
20 Dec | ||
| Communication Services | XLC | 21.29 |
Fair
|
Overvalued
|
Expensive
|
20.77 | 17.03 | 15.60 |
+0.24 σ
|
+1.20 σ
|
+2.33 σ
|
20 Dec | ||
| Financials | XLF | 17.69 |
Expensive
|
Expensive
|
Expensive
|
14.24 | 13.52 | 12.67 |
+2.74 σ
|
+4.35 σ
|
+4.40 σ
|
20 Dec | ||
| Energy | XLE | 14.50 |
Fair
|
Fair
|
Fair
|
14.38 | 19.45 | 14.21 |
+0.02 σ
|
-0.64 σ
|
+0.06 σ
|
20 Dec | ||
A P/E greater than (μ + σ) is defined "Overvalued", greater than (μ + 2σ) is defined "Expensive".
A P/E less than (μ - σ) is defined "Undervalued", less than (μ - 2σ) is defined "Cheap".
Sector Details
Defensive sectors are those that tend to perform well in economic downturns because they offer products or services that are necessary for everyday life. These sectors include Consumer Staples, Health Care, and Utilities.
- Consumer Staples include products such as food, beverages, and household goods, which are necessary for daily living.
- Health Care includes companies in the healthcare industry, which will always be necessary no matter the economic climate.
- Utilities include companies that provide essential services such as electricity, water, and gas.
Non-defensive sectors, on the other hand, are those that tend to perform well in economic boom times. These sectors include Consumer Discretionary and Information Technology/Communication Services.
- Consumer Discretionary includes companies that sell products that people can live without, such as luxury goods and entertainment.
- Information Technology and Communication Services include companies that provide technology-related services and products, such as software and hardware.
The remaining sectors, Energy, Financials, Industrials, Materials and Real Estate, are not necessarily defensive or non-defensive as a whole. They can be influenced by factors such as interest rates, commodity prices, and economic growth.