What actually makes a whole sector rise or fall together?

If a sector is a "these move together" bucket, the natural next question is: move together because of what? Every sector has a small set of drivers — the handful of forces that push most of its members the same way at the same time. Knowing a sector's drivers is knowing what to watch.

Each sector dances to a few tunes

A driver is an external variable that a sector's fortunes hang on:

• Energy dances to the oil and gas price. When crude jumps, energy profits jump; the driver is almost the whole story.
• Banks (Financials) dance to interest rates and the credit cycle — the spread they earn and whether borrowers keep paying.
• Utilities dance to interest rates too, but in reverse — as steady-dividend businesses, they're valued a bit like bonds, so rising rates tend to weigh on them (your Macro course's "rates as gravity" idea, applied to one sector).
• Consumer Discretionary dances to the health of the consumer — jobs, wages, confidence. Feeling rich, people buy the new car; feeling squeezed, they don't.
• Materials and Industrials dance to global growth — factory demand, construction, trade.

Name a sector and you can usually name its two or three master variables. That's the analytical payoff of thinking in sectors at all.

Company-specific vs sector-wide

This gives you a cleaner version of an instinct from Foundations. When a stock moves, split the cause:

• Sector-wide — the oil price moved, so every energy name moved. Nothing to do with this particular company's skill.
• Company-specific — this one driller found a huge field while its rivals didn't. Its own story, on top of the sector tide.

Good analysis constantly asks: is this the sector or is this the company? Attribute a sector-wide tailwind to management genius and you'll overpay; blame a manager for a sector-wide headwind and you'll misjudge them.

A worked example

Two miners, DigCo and OreCorp, both rise 8% in a week. Copper rose 8% that week too. Before praising either management, notice: the driver (the copper price) explains almost the whole move. If DigCo had risen 8% while copper was flat, that would be a company story worth investigating. Same 8%, completely different meaning, and the driver is what tells them apart.

Try it now

Pick one sector and write down its two or three likely drivers before looking at anything. Then check yourself against the driver itself.

Copper, the master variable behind every copper miner:

And crude, the one behind the energy sector:

1. Pick the chart that matches the sector you chose and Measure its two or three sharpest moves. Those weeks are when every company in that sector moved together, whatever its management did.
2. Now open two or three companies in that sector in the Terminal and read their price charts over the same weeks. A copper miner and an oil producer to start with, Open FCX.US in the EODHD Terminal and Open XOM.US in the EODHD Terminal; change the symbol to the other names in your sector. Do they broadly rise and fall with the driver above? Weekly bars make this easier to see than daily ones — switch the charts here to Weekly and compare like with like.
3. Find one week where a name diverged from the driver. That divergence is where the company story lives — note which name broke from the pack and start asking why.
4. Say the discipline once. An 8% move in a miner during an 8% week for copper is the driver, not management genius; the same 8% while copper is flat is a company story worth investigating.