Who's Number One?
Communication Services sits at the top of the leaderboard
Ever since the end of 2022, growth stocks have dominated the investment landscape. And no group has been stronger than the Communication Services sector. It’s jumped 71%, more than doubling the return of the S&P 500 and outpacing even the ever-dominant Information Technology sector.
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 now in a relative uptrend versus the rest of the index, and only a break of the 2018 lows would change that. We saw the ratio successfully backtest its breakout above that key rotational level in December.
By no means is this a broad move in Communications. Unlike the Information Technology sector, where you see 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 it just hit 10-month lows relative to the equally weighted S&P 500.
And just half of the sector’s constituents are above a rising 200-day moving average. That’s not the worst mark in the index, but not something you’d expect to see from a group that has risen 70% over the last 13 months and just set a new 52-week high.
How can Communications be so strong 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. And those two have been nearly unstoppable.