GICS Sectors : Sensitivity to the Economic Cycle

1.1/ Definition

A stock market sector is a grouping of companies operating in the same market, which therefore exhibit similar behavior in response to economic and market cycles.
An economic cycle is the succession of periods of economic growth, followed by slowdown or recession. The economy is inherently cyclical, with difficult phases followed by phases more conducive to development.


We will focus particularly on the GICS (Global Industry Classification Standard) classification, which categorizes 11 sectors and three super-sectors.

1.2/Each Sector Has Its Own Specificities and Behavior

Sectors are grouped into three super-sectors: Defensive, Sensitive, and Cyclical.

1/ The Defensive Super-Sector

Companies in this sector are less sensitive to changes in the economic climate because they provide goods and services that customers need in all periods. Three sectors are included:

a) Consumer Staples
This includes everything needed for daily consumption: drinking, eating, household cleaning products, pens, etc. A few examples:

  • Danone, Pepsi, and Coca-Cola (food and beverages);
  • Procter & Gamble, 3M, Unilever (consumer goods).
    Whether there’s a crisis or not, people need to eat, drink, and buy everyday products (hygiene products, Post-its, etc.).

b) Healthcare
This encompasses everything related to treating the sick and medical equipment, for example:

  • Sanofi, a French international company;
  • Pfizer, particularly famous for its COVID vaccines.
    Whether there’s a crisis or not, people need healthcare and hospitals need to be equipped.

c) Utilities
This sector covers everything related to public services: water, electricity, gas, for example:

  • Veolia, a company specialized in water treatment;
  • Southern Company, for electricity production and distribution in the United States.
    Whether there’s a crisis or not, people need to wash and heat their homes.

This defensive super-sector allows investment in companies that will be less acutely affected by recessions but will also grow more slowly during growth periods. It is a less stressful investment sector because it is less volatile.

2/ The Cyclical Super-Sector

Unlike the defensive super-sector, this one is particularly volatile, and asset prices closely follow the curve of economic growth. Indeed, one can stop buying certain goods or services during a crisis (stop going to restaurants). Conversely, these sectors will rebound very quickly during growth periods.

a) Consumer Discretionary: This includes non-essential goods. It’s consumption that can be postponed (buying a new car, going to a restaurant) or abandoned (no longer going to hotels, giving up luxury accessories, etc.).
Some examples of listed companies in this sector:

  • Renault or Ford (cars);
  • McDonald’s;
  • Ralph Lauren.

b) Materials: When growth is weak, orders for goods are lower, so the price of raw materials (copper, gold, nickel, steel, etc.) is under less pressure. And in case of strong growth, the demand for goods is very high, which implies rising prices.
Some examples of listed companies in this sector:

  • Air Liquide, which produces gases for healthcare and industry;
  • The mining sector (gold mines, nickel mines, etc.);
  • ArcelorMittal, which produces steel.

c) Financials: These are banks, insurance companies, and financial firms as a whole. Growth favors them because for banks, interest rates tend to rise during expansion phases (which increases their profit on loans). For insurance companies, which hold many financial and non-financial assets, the value of their portfolio increases when the economy is doing well and decreases when activity slows down.
Some examples of listed companies in this sector:

  • Axa for insurance;
  • BNP Paribas or Citigroup.

d) Real Estate: These are companies that invest in residential real estate, shopping centers, offices, logistics sites, etc. These companies are called listed real estate companies (REITs). Their activity is cyclical because they depend on the level of interest rates (they borrow to buy and rent, so a rise in interest rates increases their costs) and the level of activity (companies and households have more or less money to invest depending on the state of the overall economy).
Some examples of listed companies in this sector:

  • Klépierre, a European company that owns shopping centers;
  • Realty Income, a renowned US REIT that pays a dividend every month to its shareholders.

3/ The “Sensitive” Super-Sector (Sensitive to the Cycle)

This group of companies represents an intermediate category: they are not completely insensitive to the economic cycle but, nonetheless, have resilient activities. For example, during a crisis, individuals and businesses continue to use their telecommunication services (phone, networks), even if they are more careful to control their bills. The same goes for energy, the need for which is always real but whose volume fluctuates according to demand.

a) Energy: Energy production companies include those related to the exploitation of hydrocarbons, from exploration to refining and transport. Although the need for energy is always present, the level of demand can vary greatly while supply requires significant investment and time to increase. This is why the energy sector is in this group: demand is always present regardless of the point in the economic cycle, but the asymmetry between the ability of supply and demand to change also makes the sector somewhat cyclical – which explains price volatility.
Some examples of listed companies in this sector:

  • TotalEnergies in Europe;
  • Chevron in the United States.

b) Communication Services: This group includes all major telecommunications operators (with fairly stable activity) and the media and entertainment sector (which proves to be somewhat more cyclical).
Some examples of listed companies in this sector:

  • Orange in France or AT&T in the US for telecommunications operators;
  • Netflix or Disney for entertainment companies.

c) Industrials: Seemingly simple to define, this sector is surprisingly diverse as it groups producers of airplanes, weapons, machine tools, robots, etc., in the same category. All these companies are cyclical by nature, but the cycles they experience do not necessarily correspond to the economic cycle as a whole. It is arguably a less homogeneous sector than the others.
Some examples of listed companies in this sector:

  • Schneider Electric;
  • Lockheed Martin or Dassault Aviation for defense;
  • Airbus and Boeing.

d) Information Technology (IT): Their activity is not necessarily correlated with the economic cycle but, on the one hand, a slowdown constrains spending on technology, and on the other hand, rising interest rates during growth diminish investor appeal for this sector because risk-free assets are better remunerated… and these risky assets are less in demand.
Some examples of listed companies in this sector:

  • Apple;
  • Microsoft;
  • Facebook (Meta).

4/ What are the key takeaways? Your sector choices reflect your risk appetite

Investors distribute their purchases of stocks and bonds among different business sectors, and each group has its own specific characteristics:


1/ Companies within each group react in a similar way (their prices move in the same manner). Thus, based on a portfolio’s allocation across sectors, it is possible to anticipate its behavior in the event of a macroeconomic change;


2/ This classification provides investors with a tool for diversifying their portfolio. Regardless of your mindset, you must diversify your investments across all business sectors, but to levels adapted to your psychology/investment philosophy;


3/ Depending on their strategies, investors will overweight certain sectors. For example, an investor seeking to maximize the stability of their portfolio will invest more in the consumer staples sector, while another who is risk-tolerant and seeking higher gains will invest in the commodities sector at the bottom of the economic cycle, aiming for a massive rebound when activity recovers.