Earlier in this chapter, we discuss

Earlier in this chapter, we discussed the business cycle and how investments inspecific firms can be classified as defensive or cyclical. These classifications are a description of how dependent these firms are on the business cycle. Defensive investments are not as linked to the business cycle as are cyclical investments. To examine these links in more detail, and to learn how to evaluate sectors and industries, we turn our focus to the general process of sector and industry analysis.
Identifying sectors
S&P sectors
There are many ways to define a sector. A good starting point is the list of ten basic sectors uased by Standard and Poor’s, the creator of the S&P 500 Index. Table 19.3 provides a list of ten sectors, along with their mid-2012 index weights. As you can see, some sectors are quite small( such as telecommunications and utilities), while others (such as financials and technology) are quite large.
While these weights are not extremely volatile, they do change when some sectors do well relative to other sectors. For example, in early 2007 financials comprised over 20 percent of the index weight. Financials were less than 15 percent of the index following the financial crisis and related Crash of 2008. This fluctuation might seen like common sense, but understanding the reasons behind these movements could give you an advantage when you invest.
Rotational investing
As we discussed earlier in the chapter, marcoeconomic trends and government actions can favor some insdustries more than others. Unsophisticated investors might believe that if the S&P 500 return is positive, then the returns for all sectors must be positive.