What’s the relevance of U.S. sectors globally in the current landscape? Join S&P DJI's Hamish Preston and State Street Investment Management’s Matt Bartolini as they explore the Select Sector Indices and how they are helping market participants evaluate and express sector views across evolving market conditions.
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Erin Real:
The Select Sector Indices measure the performance of S&P 500 sectors serving as the basis for an ecosystem of financial solutions that help market participants express views with precision. As markets and their component companies evolve, the way sectors are classified changes too, helping sector tools remain sharp and aligned with specific objectives.
Hello, I'm Erin Real from Asset TV, and joining me today for a closer look at Select Sectors are Hamish Preston, Head of U.S. Equities at S&P Dow Jones Indices, and Matt Bartolini, Global Head of Research Strategists at State Street Investment Management. Hamish, Matt, thank you both for joining me today.
I'm going to dive right in with you, Hamish. So, what's the relevance of the U.S. sectors globally today?
Hamish Preston:
Sure. So, the breadth and depth of the U.S. equity market means that U.S. companies represent a sizable portion of the global equity opportunity set and global sectors. So, for example, toward the end of March 2026, if you look at the S&P Global BMI, which is S&P Dow Jones Indices' global equity benchmark covering developed and emerging markets, and you look across the 11 sectors, U.S. companies accounted for the majority of the index weight in those float-market-capitalization-weighted sectors in most sectors.
So, what does this mean? Well, it means that having a U.S. perspective can be relevant and helpful for market participants around the world when they're trying to assess the impact of different trends on different sectors. But, also, then, when you think about the composition of the U.S. equity markets, particularly in areas like Information Technology and Communication Services, where around three-quarters of the global market cap is in U.S. companies, it can also be very relevant when it comes to expressing views on those particular areas as well.
Erin Real:
And, Hamish, what are the Select Sectors, and how are they constructed, and what are some of the key performance drivers of them?
Hamish Preston:
Sure. So, the Select Sector Indices were launched in the late 1990s, and they're designed to measure the performance of S&P 500 sectors. So, each company in the S&P 500 is assigned to one of the 11 sectors based on the GICS framework. So, GICS stands for Global Industry Classification Standard, and it's been around since 1999. And, what it does as a framework is it assigns companies based on their principal business activity using revenues and also incorporating earnings and market perception.
So, what this means in a practical sense is that companies in the same sector typically share common sensitivities to drivers of performance. But, crucially, those drivers of performance and those exposures may well be distinct across sectors. If you think about what's important and relevant for an Energy company's performance may well be distinct from that of an Information Technology or Financials company. And, so, once again, from a sector perspective, this is really relevant, and the Select Sector Indices really allow for the measurement of what's happening in these segments within the S&P 500 universe.
Erin Real:
Matt, how do market participants use Select Sectors to express views?
Matt Bartolini:
So, they can utilize them to harness some of the alpha opportunities out in the marketplace based on prevailing market trends. And, when we look at this, we see investors mainly falling into three particular categories. One being more of a fundamental bottom-up type approach, where you're looking at the underlying sectors and the companies within those and building a fundamental use case based on the growth or valuation frameworks of these stocks, then grouped together by their shared principles and sectors.
So, looking at a bottom-up measure, understanding where maybe the growth opportunities would be, and leaning into those sectors and those stocks that share those same properties. And, you can make the same case of the valuation argument.
Secondarily, you can also take a look at it from a top-down perspective. Because these stocks are grouped by those shared properties, both from a revenue perspective but also their operating profile, they share some of the similar macro sensitivities. So, on a top-down basis, you can get an understanding of how they may perform in a rising-rate environment, or a rise in inflation, or how it relates back to changes in the Energy complex. So, taking a look at it from a top-down macro perspective and owning, say, sectors that may perform well in falling growth and reduction in consumption, which usually leads to more defensive sectors.
And, then, the last one, I would say, is more technical. In using momentum-type style indicators to then build or rotate a portfolio and harness that wide amount of dispersion that sectors do have, far more than other instruments like styles or factors, and harnessing that dispersion by rotating among those using tried-and-true momentum indicators.
So, those are really three ways that investors can be directional and intentional based on their sector viewpoints.
Erin Real:
Matt, what are some potential sector opportunities and risks in 2026, and how are you discussing these with your clients at the moment?
Matt Bartolini:
So, I think we like to zoom out a little bit and understand the complex of the sector environment and bifurcate it based on near-term market trends. And, one of them is just the massive buildout in AI capital expenditure. And, we obviously know that tech stocks are at the forefront of fueling that capital expenditure (capex). But, that growth is going to be further out on the horizon. Right now, that spending is going down into Industrials and Utilities sector firms that are building out the data processing and infrastructure needed to support that capex. They're getting that first dollar of spending, and that's why we see some of the earnings growth right there in an immediate perspective.
But, also, taking that step back on a thematic lens, they are at the forefront of that AI capex. I think another area that's interesting from an opportunity perspective is, irregardless of geopolitical events, there has been a change in the Energy complex. There has been stubbornness in inflation, having that not come down to where the Fed would like to be. So, owning more natural resource equities has been one opportunity, and that's Energies and Materials.
Now, I'd say the bigger risk is around Information Technology. A lot of investors have piled into Information Technology over the last few years, and it's been a famously winning trade. However, those capex expenditures are now being questioned. Can they deliver that growth? And, valuations are somewhat stretched. Also, if you do have a rise in rates, they're a long-duration asset, and that could weigh on their present value and future cash flows. So, I think it does remain a risk, but it still has an opportunity to it as well, just given that growth potential. But, I think, near term, I'd want to be more in the Industrials or Utility space to pick up that sort of first order of dollar from the capex spending cycle.
Erin Real:
Matt, Hamish, thank you both for your sector insight today. And, thank you for listening today to Asset TV.
To learn more about indexing and how it works for Select Sectors and to sign up to receive S&P DJI's complimentary sector research and monthly data reports, visit the link below.
