When you hear the term market sectors or market rotation, what are they talking about? What is a sector and how does that effect my portfolio? The market is divided into three broad categories. 1). Defensive stocks: companies that should do well in good times and bad. They are the essentials of life. 2). Growth companies: ones that are more volatile with great opportunity for gains and losses. 3). Cyclical companies: ones that literally cycle in and out of favor, generally based on the underlying economy. Within each broad category are sectors, companies whose stock is going to trend similarly with good and bad news.