Arthur J. Villasanta – Fourth Estate Contributor
New York, NY, United States (4E) – The creation of a new Communications Services sector at the benchmark Standard & Poor’s 500, which debuts today, will likely increase market volatility. It also stands to change how investors think about the firms that are part of the S&P 500 and how they approach the market from now on.
News of the impending reshuffle helped cause the S&P 500 to lose 1.08 points, or 0.04 percent, on Friday (Sept. 21). The index closed at 2,929.67. The NASDAQ Composite, all of whose firms are also listed on the S&P 500, shed 41.28 points (or 0.51 percent) to settle at 7,986.96.
On the other hand, the Dow Jones Industrial Average rose 86.52 points, or 0.32 percent, to 26,743.5. Industrials led the Dow to this new closing high on Friday ahead of Monday’s major sector reshuffle at the S&P 500. Trading volume rose to the highest level since Feb. 9.
The S&P 500 is a market index based on the market capitalizations of 500 large companies having common stock listed on the New York Stock Exchange and the NASDAQ.
The sector reshuffle will see the three firms listed under the telecommunications group (AT&T, Verizon and CenturyLink) transferred into a new sector called “Communications Services.” The change will increase the number of firms in Communications Services to 20.
Among these firms are heavyweight companies from the technology and the consumer discretionary sectors (notably Amazon). The sector also includes media companies, video-game publishers and social media firms.
The change will give Communications Services a market value of more than $2 trillion. Of this massive total, $1.25 trillion will come from Alphabet (parent firm of Google) and Facebook. Netflix and Twitter are also part of Communications Services.
Apart from Alphabet, Facebook and Netflix, the Communication Services sector includes broadcasters like CBS and Discovery; cable and Internet firms like Comcast; movie studios such as The Walt Disney Company and video-game-makers like Activision Blizzard.
Analysts said this combination of safe and risky bets means that very volatile or cyclical companies like Netflix and Facebook are going to be very high growth oriented when the market is doing well, but will suffer when the market drops.
They pointed out the reshuffle reflects the way the communications and media industries have evolved. AT&T and Verizon were once only phone companies but are now media companies, as well. AT&T bought Time Warner (parent of HBO and Warner Brothers). Comcast bought NBCUniversal in 2013.
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