Wall Street slices up the stock market into 11 sectors: technology, healthcare, energy, etc. This is how they have grouped stocks for decades.
But what if those categories are no longer applicable to the world we live in?
I created a different framework. It’s based on how companies (and assets) make and lose money as the government prints more debt, tries to keep interest rates low, and inflation chips away at real wages.
By the end of this piece, you’ll have a better understanding of how I categorize assets, and why thinking like this might be a better way to understand how the market works.
Productivity Premium: Who Actually Builds the Modern Economy
Productivity premium companies make the tools that help the rest of the economy run more efficiently. They provide the foundation that everyone else builds on.
There are two tiers here, and they depend on each other.
Tier 1A: Chips and Hardware (Physical Foundation)
These companies design and build the chips and equipment that power our economy. Without them, nothing else in this category works.
- Chip designers: NVIDIA, AMD, Qualcomm, Apple
- Fabrication: TSMC and Samsung
- Fabrication equipment: ASML, Applied Materials, Lam Research, and KLAC
- Memory (RAM): Samsung, SK Hynix, and Micron
Tier 1B: Cloud and Software Infrastructure
This tier sits on top of the chip layer. It turns raw computing power into tools businesses can actually use.
Without Tier 1A, Tier 1B has nothing to run on. Without Tier 1B, businesses can’t access what Tier 1A produces. They need each other to function.
- Cloud platforms: Microsoft (Azure), Amazon (AWS), Alphabet (Google Cloud).
- Networking infrastructure: Cisco, Arista (the companies that physically connect everything together)
- Enterprise software and databases: Oracle, IBM, Dell, Salesforce
Liquidity Monetization: Who Profits When Money Moves
Companies in this group don’t really create anything. Instead, they position themselves inside the flow of money. Every time money changes hands, grows, or is managed, they take a cut for themselves.
Pure Volume Risk: The Lowest Exposure
These companies have almost no downside beyond transaction volume (people buying and selling stuff) slowing down. Their revenue dips when people spend less, but nothing blows up on their balance sheet.
- Visa and Mastercard: They process transactions and collect fees. No lending or credit risk.
- S&P Global: Every bond needs a rating. Every index uses their benchmarks. Revenue grows as debt issuance grows.
- American Express: Similar to Visa and Mastercard, but has a lending arm with some credit exposure.
Asset Price Risk: Moderate Exposure
These companies manage other people’s money and charge a percentage of it. When asset prices fall, their fees shrink. The losses belong to their clients, not them.
- BlackRock: Manages roughly $10 trillion in assets. As the money supply grows and assets inflate, BlackRock’s fees grow too.
- Morgan Stanley and Goldman Sachs: Trading, advisory, and asset management fees scale with market activity.
- Charles Schwab and Interactive Brokers: Revenue grows with more accounts and higher asset values.
Credit Risk: Highest Exposure
These companies share the same benefits as the companies above, but they actually hold the loans. When borrowers can’t pay, it’s a hit to their own balance sheet.
- JPMorgan, Bank of America, Wells Fargo, Citigroup: Traditional banks holding consumer and commercial loans. The 2008 financial crisis showed exactly what happens when defaults spike.
- Blackstone and private credit: Provide loans to companies that can’t access public debt markets. Little oversight and lack of liquidity can cause problems.
Government Spending: Why Some Companies Almost Can’t Fail
These companies get a significant chunk of their revenue directly from the federal government. In a world where government spending keeps growing, that’s about as reliable a revenue stream as you can find.
The category breaks into three main groups.
Defense and Military
Economic cycles barely touch this group. Defense budgets are politically protected. No politician wants to be the one to cut military spending.
You can also think of it like this: the US is the most powerful country on the planet. They will do anything (including spending more) to make it stay that way.
Some companies include:
- Lockheed Martin gets roughly 97% of its revenue from government contracts, mostly from the Department of Defense.
- RTX (formerly Raytheon) is similar at around 60%.
These companies don’t really have a market in the traditional sense. You and I aren’t going to Lockheed Martin to purchase weapon systems.
Medicare and Medicaid: The biggest category by dollar volume
- UnitedHealth gets roughly 75% of its revenue from administering government health programs through Medicare Advantage (a version of Medicare run by private insurers) and Medicaid.
- CVS has exposure through pharmacy benefits and insurance.
Pharmaceutical companies also rely on government reinbursement.
- Pfizer, Merck, AbbVie, Eli Lilly, Gilead, and others depend on Medicare Part D (the prescription drug program) and Medicaid for a significant share of what they actually collect.
- Medical device makers like Stryker, Abbott, and Intuitive Surgical flow through the same reimbursement system.
However there is a catch. Government pricing power cuts both ways. The government could also cap prices if needed.
For example, President Biden’s $35 insulin cap was great for people, not investors.
Government Technology: The fastest growing sector
- Palantir gets over half its revenue from intelligence and military contracts.
- Microsoft, Amazon, Oracle, and IBM all compete for federal cloud infrastructure contracts worth hundreds of billions.
Once the government moves its systems to your platform, it’s almost never leaves.
The Real Economy: What Needs, Wants, and Hybrids Reveal
Real economy companies track how consumers are actually doing. They sit in the consumer discretionary and consumer staples sectors.
I split them into three categories: Needs, Wants, and Hybrids.
Needs: Spending That Doesn’t Stop
These companies sell what we need to survive.
- Walmart, Costco, and Procter and Gamble fall here because people need groceries and household staples whether the economy is weak or strong.
- Philip Morris represent an extreme version of this. Addiction makes tobacco a need for people. The same can be said for other companies that produce addictive substances.
Wants: The First Thing Consumers Cut
These companies do well when people have extra cash. When budgets tighten, these things are the first on the cutting block.
- Starbucks is a great example. A $7 latte is an easy cut when money gets tight. It’s cheaper to make coffee at home.
- Netflix, Walt Disney, Tesla, and Booking Holdings are other examples. These companies track consumer confidence closely. There revenues tend to shrink when the consumer is hurting.
There’s something to note though. We live in a K-shaped economy. Wants companies might continue to do well because wealthy people keep spending even while average people cut back.
Hybrids: Part Needs, Part Wants
These companies serve both a need version and a want version of the same business, depending on how much money consumers have.
Home Depot and Lowe’s are the textbook example (and the reason this category exists as its own group). When the economy is good, people have enough money to remodel their kitchens and bathrooms. That’s the want version. When money is tight, they still have to fix the broken water heater or patch the leaking roof. That’s the need version. The want side of the business contracts but the need side provides a floor.
In an environment where real wages (your paycheck’s actual purchasing power after inflation) are being squeezed, understanding whether a company serves needs or wants becomes more predictive than traditional financial metrics.
My analysis of wages versus inflation since 1972 shows how that squeeze has played out for American households over the past five decades.
Real/Scarce Assets: What Holds Value as Dollars Weaken
This category is about preservation. When the money supply keeps expanding and the purchasing power of a dollar keeps declining over time, some assets hold their value because they’re tied to something genuinely scarce (something you can’t just print more of).
There are two distinct types of scarcity that matter here.
Physical Scarcity: Things You Can’t Print
These are finite resources that the economy structurally depends on. Oil companies like Exxon, Chevron, and ConocoPhillips aren’t selling a consumer preference. They’re extracting something that factories, vehicles, planes, and power plants require regardless of what anyone prefers. Newmont mines gold, which has served as a monetary metal (a store of value tied to no government’s promise) for thousands of years across dozens of different economic regimes. Southern Copper produces copper, which is increasingly critical for electrification and infrastructure.
Productive land is another scarce asset. Companies like Welltower (healthcare properties, senior living) and Prologis (logistics and industrial warehouses) belong here.
The key dynamic with real assets is depletion and scarcity. Every barrel of oil pumped is one less in the ground. That creates a long-term floor on value that paper assets simply don’t have. You can print more dollars. You can’t print more copper or more land.
Attention Scarcity: A Resource That Renews Daily
This one requires a slightly different mental model. Human attention is also finite and scarce. There are only so many waking hours in a day. Companies that have built dominant infrastructure to capture those hours at scale are sitting on a resource that has real economic value.
Netflix, Walt Disney, Meta, and Alphabet (through YouTube and Google) have each built systems that capture enormous shares of human attention. These are infrastructure assets that compound over time and get harder to displace the longer they hold the user.
Unlike physical resources, attention scarcity renews every 24 hours. But the infrastructure built to capture it compounds over time the same way a physical asset does. A new oil company can drill a new well. A new streaming service has to somehow convince people to change their evening habits away from something they’ve been doing for years.
Bitcoin: Scarcity With Uncertainty
Bitcoin deserves a mention here with an honest caveat. It was designed with mathematical scarcity built in (only 21 million will ever exist). Whether that scarcity translates into a reliable long-term store of value the way gold has is still genuinely unknown. The volatility is real. The regulatory uncertainty is real. But the scarcity argument is mathematically sound, and more institutions are treating it as a partial hedge against currency debasement (when a government inflates its currency, reducing its purchasing power). It belongs in the conversation with appropriate uncertainty attached.
For historical data on how gold and real assets have performed relative to equities and inflation, my S&P 500 sector performance versus gold and inflation is worth reading alongside this piece.
How to Use This Framework
A few things to keep in mind when applying these categories to your own thinking.
- Most companies fit cleanly in one category. But some span multiple. Amazon is productivity premium through AWS, liquidity monetization through its advertising and marketplace fees, and real economy through its retail operations. That overlap is part of why it’s so dominant.
- Sector labels and these categories often disagree. NVIDIA and Netflix are both ‘tech’ in traditional sector terms. But NVIDIA is productivity premium and Netflix is attention scarcity. They respond to inflation, recession, and government policy in completely different ways.
- The real economy category is your read on Main Street. When needs companies start struggling (not just wants), the financial stress on ordinary Americans is deep.
- Risk exposure matters as much as upside potential. All liquidity monetizers benefit from M2 expansion, but pure toll booths like Visa and credit-risk banks like JPMorgan carry very different downside scenarios. Understanding the difference changes how you think about what you own.
The Bottom Line
Sector labels were built for a simpler economy. They’re still useful as shorthand, but they don’t tell you what you actually need to know when you’re trying to understand how a company makes money and how it’ll hold up under different economic conditions.
The five categories do that job better. They force you to ask the right questions about any company before deciding it belongs in your portfolio. What creates or captures the value here? What does it depend on? What breaks it?
Those questions are worth a lot more than knowing which sector a company gets assigned to.