Top Charts and Trade Ideas from the Communication Services Sector
Growth stocks are once again off to a strong start in 2024, and no sector has been better than Communication Services. Yesterday, it closed at new 52-week highs, bringing its year-to-date gain to 12.5%.
But Communications still has some catching up to do. It was the single worst performing sector in the bear market that endured for 2022, meaning for the complete cycle, the group is still lagging the return of the S&P 500. In fact, since the sector set its all-time high in September 2021, only Real Estate and Utilities have been worse.
Structurally, though, the group is clearly in a relative uptrend versus the rest of the index, and only a break of the December lows would change that.
By no means is this a broad move. Unlike the Information Technology sector, where we’ve seen Tech outperforming on both a market cap weighted basis and an equally weighted basis - and even in the small cap space - the majority of Communication Services stocks aren’t doing that well. The equally weighted sector hasn’t even managed to surpass the peak it set at the beginning of last year.
And just last week it was at all-time lows relative to the equally weighted S&P 500.
We can see that weakness quite clearly on the weekly Relative Rotation Graph. RSPC is in the ‘Lagging’ quadrant and trending steadily toward the lower left corner.
If we look at moving average breadth, no sector has more stocks below their 50-day or 100-day than Communication Services. And only Consumer Staples and Utilities are weaker on a long-term basis.
So how can Communications be leading the market in returns when there’s such weakness beneath the surface? Thank the mega caps. Together, Alphabet and Meta comprise more than two-thirds of the weighting of the entire sector.
Digging Deeper
Keep reading with a 7-day free trial
Subscribe to Grindstone Intelligence to keep reading this post and get 7 days of free access to the full post archives.